China Builder Kaisa Faces Payment Test Amid Liquidity Crunch

(Bloomberg) -- Kaisa Group Holdings Ltd. faces two dollar-bond interest payments this week, days after the developer missed payouts on financial products it guaranteed.

The company, China’s third-largest dollar debt borrower among builders, has a combined $88.4 million of coupons coming due. Kaisa said last week it faced “unprecedented pressure on its liquidity,” citing recent downgrades and a challenging environment in which falling sales and soaring borrowing costs have squeezed junk-rated Chinese builders. Credit-market stress has spread beyond such firms, as concerns about the impact on larger property companies and the broader economy continue to build. 

Cash-strapped Kaisa is trying to sell property assets with an estimated value of $12.8 billion. Its slow progress on divestitures has increased the likelihood it defaults on dollar-bond interest payments at some point, Fitch Ratings said in its latest downgrade this week, citing risks including undisclosed debt from wealth management products and declining sales. S&P Global Ratings said Thursday in its ratings cut that “a default scenario is inevitable within six months.”

This week’s interest payments have 30-day grace periods before events of default occur, according to bond documents seen by Bloomberg. Kaisa, which in 2015 became China’s first developer to default on dollar notes, didn’t respond to requests for comment.

Some of the developer’s debt prices started weakening in September, when many of its peers’ dollar bonds fell sharply on debt-repayment worries in light of China Evergrande Group’s struggles and delayed coupon payments. Kaisa’s notes plunged last month in the wake of ratings downgrades and canceled investor meetings. Another gathering was shelved earlier this week. Its bonds were little changed Thursday morning, remaining at distressed levels, while the broader market was climbing for a second day.

Kaisa next month has $184.5 million of dollar-bond coupons due, according to Bloomberg-compiled data, and a $400 million note that matures on Dec. 7. The company became one of China’s larger issuers of such debt despite its 2015 default and subsequent workout. China’s 27th biggest builder so far this year by contracted sales, Kaisa has $11.6 billion of dollar bonds outstanding.

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