Troubled Chinese property developer Kaisa Group Holdings on April 20 announced that it has failed to make the scheduled interest payments on its two outstanding bonds.
In a filing to the Hong Kong Exchanges and Clearing (HKEx), the company says it did not make the scheduled interest payment of US$16.1 million on its 2017 notes and US$35.5 million on its 2018 notes, which were due on March 18 and March 19, respectively. The company adds it has not made such interest payment within 30 days of the respective due dates.
“The company is focused on facilitating the release of its 2014 audited financial results and following that release, will continue its efforts to reach a consensual restructuring of its outstanding debts,” Kaisa says in the HKEx filing. “In view of the foregoing, the company hopes to enter into standstill agreements with certain of its offshore debt holders as soon as practicable.”
In September 2012, Kaisa priced a US$250 million five-year senior notes, bearing a coupon of 12.875% per annum. It returned to the market in March 2013, when it raised US$550 million of five-year non-call three senior notes with coupon of 8.875%. The March 2013 offering attracted a huge order book of US$10 billion from 350 accounts and the company re-opened this deal in January 2014 for another US$250 million.
Kaisa’s latest predicament comes as Standard & Poor’s, on its April 17 report, warns that earnings and profitability of some Chinese property developers could deteriorate further in 2015, and more defaults cannot be ruled out. It notes that the annual results for 2014 indicate that many developers are in significantly worse shape than in the previous year. Although most of these companies met their sales targets, their profitability generally took a substantial blow, it points out.
“The slack operating performance in recent months has weakened the credit profiles of many Chinese developers,” says S&P credit analyst Christopher Yip. “Continuing slower sales growth and selling leverage could lead to further negative rating actions over the next 12 months.”
Yip says liquidity remains a key risk for Chinese developers and has worsened for a number of already weaker companies. “Lower cash balances, paired with increased short-term maturities, have heightened refinancing risks, particularly for developers carrying high-cost alternative financing,” he adds.
