Chinese developers face make-or-break week in liquidation cases
The focus is on Kaisa Group Holdings, once a symbol of the boom years in China’s credit markets, which has its hearing on Monday
FOUR defaulted Chinese developers are headed into Hong Kong court hearings on liquidation demands next week, marking one of the busiest such stretches ever for the sector.
The focus is on Kaisa, once a symbol of the boom years in China’s credit markets, which has its hearing on Monday (Jun 24). That’s followed on Wednesday by Shimao, whose landmark projects include five-star hotels in Shanghai. The companies must show they have made progress in restructuring their debt, or run the risk of judges ordering their assets to be sold off to repay creditors.
Hong Kong has become the epicentre of the financial turmoil facing developers amid a multiyear crisis in China’s property sector, after once acting as a gateway for investors to access their high-yield offshore bonds. At least five builders, including heavyweight China Evergrande, have already received wind-up orders from the city’s high court.
Dexin China, a home-builder in an affluent eastern coastal region, last week became the latest developer to be liquidated in a case in Hong Kong. Judge Linda Chan refuted the company’s argument about its ongoing negotiations, saying it was “not good enough” and “nothing had been put in writing”. And the tumult is still spreading, with Sunshine 100 receiving a similar petition this week.
China’s government in recent months has stepped up measures to rescue the debt-laden property sector, including relaxing mortgage rules and asking local authorities to buy unsold homes. That’s helped a Bloomberg index of Chinese high-yield dollar bond, which is heading for an eighth month of gains on a total return basis, the longest winning streak in almost five years.
But despite the rise in junk-bond prices among some developers, a large chunk of the market remains deeply distressed. Dollar notes issued by defaulted builders such as Kaisa and Shimao, which have been removed from the Bloomberg index, are still trading below five cents on the dollar.
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Kaisa will once again be seeking to fight off its liquidation in a process that’s been delayed multiple times since a petition was first filed about 11 months ago. The distressed developer has yet to publicly present a restructuring proposal more than two years after defaulting on its offshore bonds. But its lawyer said at an earlier court hearing in April that the ad-hoc group of creditors and the company had made progress toward reaching an in-principle agreement.
Shimao will take part in a wind-up hearing for the first time, after creditor China Construction Bank (Asia) filed a petition in April. That was almost two years after the builder defaulted on its offshore debt in July 2022.
Shimao has released an initial restructuring plan offering four options to its offshore creditors, including swapping debt for notes or loans for up to nine years. A key creditor group that holds more than 25 per cent of the company’s offshore bonds outstanding told fellow noteholders in March they will vote against those terms.
Dafa Properties will face Hong Kong judges for the third time Monday, while Redsun Properties will have its second hearing on Wednesday. A number of developers including Country Garden are scheduled to have hearings in July. BLOOMBERG
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