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Chinese developer Kaisa pleads for ‘patience’ as market strife spreads

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Chinese property developer Kaisa has asked investors for “more time and patience” as it rushes to raise cash from asset sales amid signs that market turmoil is spreading to higher-rated businesses in the real estate sector.

In a statement late on Monday, Kaisa, which last week said payments had been missed on wealth management products it guarantees, apologised and said it was taking various measures to address its liquidity pressures, including sales of projects in Shenzhen and Shanghai.

Kaisa, which is a big borrower on international bond markets and faces about $3bn in bonds coming due in the next year, is the latest developer to find itself caught in a property sector liquidity crisis that has engulfed its peer Evergrande.

Evergrande, the world’s most indebted property developer, shocked global markets after it missed payments on its international bonds in late September, and is also rushing to sell assets. Late on Monday, it confirmed that it had sold a $145m stake in a Hong Kong internet-media group over recent days.

Weakness in China’s real estate sector, which has fuelled broader concerns over the health of the country’s economy, including a warning this week from the US Federal Reserve, has primarily affected riskier borrowers, such as Evergrande.

A host of other high-yield developers, including Sinic, Fantasia and China Modern Land, defaulted in October, and yields on Chinese high-yield debt hit 27 per cent on Monday, their highest level since 2009, according to an ICE index.

But against the backdrop of a worsening crisis at Kaisa, which on Friday cited the coronavirus pandemic to cancel an investor meeting scheduled for this week, negative market sentiment has begun to spill over into higher-rated, investment-grade debt. Bonds at Country Garden, China’s biggest developer by sales, and state-backed Sino-Ocean fell sharply this week.

A Country Garden bond maturing in 2024, which is rated as investment grade, is trading at 92 cents on the dollar, its lowest level since March last year, while a Sino-Ocean Land bond is trading at 91 cents on the dollar, down from more than 100 cents last month.

Leonard Law, a senior analyst at Lucror Analytics, noted that Country Garden had been a “more resilient name” owing to its “manageable financial risk profile”. Sales at the company fell 15 per cent in October compared with the same month a year earlier but were flat over the first 10 months of the year.

Law added that Evergrande, which narrowly avoided default in October by transferring interest payments it owed before 30-day grace periods expired, had missed more payments due over the weekend. The real estate group faces significant repayment deadlines for offshore bonds early next year.

Yields on an ICE index tracking Chinese investment-grade issuers this week hit 2.86 per cent, the highest level in almost six months, and about 60 basis points higher than at the start of September.

Kaisa, whose shares were suspended in Hong Kong on Friday, was the first Chinese developer to default on offshore debt in 2015. Its bonds maturing next year are trading at 32 cents on the dollar.

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