Published: Jan 2, 2015

Chinese property developer defaults on HSBC loan

HONG KONG--Chinese property developer Kaisa Group Holdings Ltd. has defaulted on a loan from HSBC Holdings PLC and warned it may struggle to pay off other debt, adding to the company's woes after a string of executive resignations.

Late Thursday, the Hong Kong-listed company said it hadn't repaid a US$52 million loan to HSBC after the U.K. bank asked for the cash back following the resignation late last month of Kaisa's chairman, Kwok Ying Shing. The loan has a clause that provides for full prepayment on the chairman's resignation.

Efforts to seek comment from Kaisa were unsuccessful. HSBC declined to comment on the matter.

China's real-estate firms borrowed heavily from overseas lenders in recent years to expand at home, but are now suffering as China's property market cools and home prices fall.

Kaisa's offshore bond prices tumbled on Friday, pushing up yields to over 50%. The company's shares have been suspended since December.

Analysts say that Kaisa has sufficient cash to make the HSBC repayment but will likely need to renegotiate terms with its lenders. As of June 30 last year, Kaisa had about six billion yuan (US$966.9 million) in short-term debt and 9.38 billion yuan in unrestricted cash Standard & Poor's said in a statement last week.

"The key thing is whether the company is able to negotiate a waiver with HSBC," said Yin Chin Cheong, Chinese properties analyst at CreditSights in Singapore.

Worries about the company's offshore debt have been growing with Moody's Investors Service recently downgrading the property developer's credit rating and Standard & Poor's also warning on the company's outlook last month.

Kaisa warned in a statement to the Hong Kong Stock Exchange Thursday that more of its debt could be affected by the default, which may have a "material adverse impact" on the company's finances. After Mr. Kwok resigned as chairman, Kaisa said it would sell a vacant plot of land in Shanghai to rival China Vanke Co. to raise US$194 million.

The circumstances around Mr. Kwok's departure are unclear, but a number of senior officials at the company based in the southern China boomtown of Shenzhen departed in December, including its chief financial officer, vice chairman and the chairman's brother, Kwok Ying Chi. The company hasn't explained why they left.

The Kwok family owns a 49.3% stake in the midtier developer, which has a market value of eight billion Hong Kong dollars (US$1.03 billion). The family isn't related to the owners of Hong Kong property giant Sun Hung Kai Properties Ltd.

Kaisa listed shares on the Hong Kong Stock Exchange in December 2009 by raising US$445 million from investors. It was backed by U.S. private-equity firm Carlyle Group L.P's Asia growth fund, which had invested ahead of the public listing. Carlyle has since exited its investment in Kaisa.

Shares in the property developer plunged in December after local authorities in Shenzhen blocked it from selling units in three residential projects. The reasons for the government's action aren't known.

"With negative headlines of Chinese property companies, like Kaisa this time, investors are getting more cautious towards the entire sector. Some bond investors have tried to reduce exposure in China's property sector," Ms. Cheong said.

Kaisa isn't the first property develop to have unsettled Western lenders. In late 2014 Agile Property Holdings Ltd. said its chairman had been detained, for unspecified reasons, as the developer scrambled to raise funds in an effort to meet a US$475 million debt payment that was due in December. It later agreed an extension from HSBC and its unit Hang Seng Bank Ltd., and Standard Chartered PLC. The company's bonds fell sharply on the news but have since recovered some ground as the chairman resurfaced.