China Property Crisis: Kaisa Group Gains 42% Following Creditor Support for Debt Restructuring

The Recent Surge in Kaisa Group Shares

Kaisa Group surged by as much as 42% in Hong Kong trading as traders bet the Chinese developer will overcome its financial crisis after enough creditors consented to its proposed debt restructuring plan.

The stock rose as much as 3.6 HK cents, or HK$0.122 before retreating to HK$0.101 at 3.45pm local time on Tuesday, according to stock exchange data, paring its decline this year to 42 per cent. The broader market advanced, with the Hang Seng Index rallying 1.3 per cent.

Creditor Support for Debt Restructuring

Kaisa said investors holding 75.11% of its debt and 81.07% of another batch of debt have agreed to support the group’s workout plan, according to an exchange filing on Monday. This consent is a critical lifeline for the Shenzhen-based home builder.

The group has proposed to issue US$5 billion worth of new bonds maturing in 2027 to 2032, and US$4.8 billion of mandatory convertible bonds to repay creditors.

Financial Status of Kaisa Group

The developer has defaulted on about US$12 billion bonds and other borrowings since 2021, triggered by China's “three red lines” policy to curb excessive leverage in the industry. Kaisa had also defaulted in 2015, when it became the first Chinese developer to renege on offshore dollar bonds.

Kaisa ranks as the second-largest issuer of offshore bonds among Chinese developers after China Evergrande Group. Its total liabilities amounted to 213 billion yuan (US$27.3 billion) on June 30, according to its financial reports, and losses widened 36% to almost 9 billion yuan in the first half this year, while revenue fell 60% from a year earlier.

Ongoing Legal Issues and Market Impact

Last week, a Hong Kong High Court rescheduled a hearing to wind up the developer to March 31 next year. The litigation is among several ongoing cases against Chinese property defaulters, keeping stock and bond investors on edge.

A Hong Kong court in January ordered China Evergrande to be liquidated after it failed to offer a viable restructuring plan to remedy US$20 billion of offshore bond defaults.

Dexin China Holdings, a developer based in eastern Zhejiang province, was also ordered to be liquidated in June. The real estate sector led bond defaults in China over the past five years, according to data published by S&P Global Ratings.

• 59 issuers have defaulted on 319 offshore bonds
• 49 issuers skipped payments on 194 onshore bonds