Chinese developer defaults on offshore debt

Chinese property developer Kaisa Group Holdings has had some of its assets frozen after several legal filings alleging breach of contract were made against the company, according to press reports.

The Shenzhen-based company has also missed a $23 million interest payment on $500 million of 10.25 percent notes, Reuters reported. The default means it is the first Chinese developer to default on dollar bonds, according to a report from rating agency Standard & Poor’s last week.

Group filings on the Hong Kong stock exchange in the last few weeks have referred to allegations that the group breached several agreements, including failure to repay a HK$400 million ($51.6 million; €43.5 million) loan provided by HSBC, after a mandatory prepayment clause was triggered by the resignation of Mr Kwok Ying Shing as chairman of the board of directors.

“We believe this default could lead to an acceleration of debt repayment on all of Kaisa’s other debt instruments, which have cross-default clauses,” S&P said last week. 

Kaisa affirmed that it had not received a demand for repayment but on Monday Reuters reported that a Chinese court had frozen some $105 million of assets at the company. Reuters noted that at least 28 court filings were made against Kaisa and its subsidiaries between 6 and 9 of January 2015 in Shenzhen, according to the latest records in the city’s Intermediate People’s Court. At least 15 Chinese financial companies have launched legal proceedings seeking to freeze the firm’s assets, the Wall Street Journal reported.

Asian credit investors are watching developments closely, Deutsche Bank noted last week, reflecting concerns about how foreign investors can recoup potential losses from Chinese companies which default, when typically their rights are structurally subordinate to onshore creditors. Chinese creditors in China’s Suntech Power Holdings, which defaulted in 2013, received 30 percent recoveries after the group restructured itself. However, overseas investors still fighting for recoveries expect to recoup little, the WSJ said.