Trading in shares of embattled Chinese developer Kaisa Group Holdings have been suspended on the Hong Kong stock exchange, prompting fresh nerves about the financial stability of the country’s massive property sector.
The suspension on Wednesday comes after Kaisa was reportedly unlikely to meet a dollar bond repayment of $400m (£301m) by the deadline of Tuesday night in the US, Reuters said, citing a source with direct knowledge of the matter.
The Chinese government sparked a crisis within the property industry when it launched a drive last year to curb excessive debt among real estate firms as well as rampant consumer speculation.
Companies that had accrued huge debt to expand suddenly found the taps turned off and began struggling to complete projects, pay contractors and meet both domestic and foreign repayments.
Kaisa, China’s 27th-largest real estate firm in terms of sales but one of its most indebted, became the latest company to spook investors when it announced on Friday that it had failed in a bid for a debt swap that would buy it crucial time. A debt swap involves the company giving creditors securities instead of repaying the debts.
On Wednesday morning the firm announced it was suspending trading in Hong Kong, where it is listed, “pending the release by the company of an announcement containing inside information”.
It is the second time the company has suspended trading in the last month. Its shares have lost 75% of their value this year.
Kaisa last month announced a plan to delay the repayment timeline for some of its bonds, offering an exchange for at least $380m of notes, which would have given it some room to find money further down the line.
But the offer failed to win the 95% approval from bondholders needed for the plan to go ahead. Some bondholders sent a formal offer of forbearance on the debt to give Kaisa more time to repay but it was not clear on Wednesday if Kaisa would accept.
The company currently has some $11.6bn of dollar notes outstanding. It previously defaulted on a dollar debt in 2015, becoming the first Chinese developer to do so.
Analysts at S&P predicted last month that a default by Kaisa was “inevitable” because the company’s liquidity appeared to be so depleted. “We believe nonpayment risk is high and could ultimately lead to debt restructuring,” they said. “A default scenario is inevitable within the next six months.”
The only Chinese developer with more offshore debt is China Evergrande, which set off the current confidence crisis in September.
China Evergrande failed to make payments of $82.5m on some US dollar bonds at the end of a month-long grace period on Tuesday, setting the stage for a massive default by the company, which has debts of $300bn.
Most of the debt is in China with only $23bn denominated in dollars. As a result, analysts expect that Evergrande will now be restructured or broken up in some way and that its huge debts will be spread through the Chinese financial system.
Shares in China Evergrande were down 1% in Hong Kong on Wednesday.
With Reuters and Agence France-Presse