Chinese Developer Kaisa Warns Creditors of Low Recovery Rate in Case of Liquidation
Chinese Property Developer in Trouble
Struggling Chinese property developer Kaisa Group has revealed that creditors would only receive less than 5% of their money back if the company is forced into liquidation. This alarming disclosure was made by a lawyer representing one of the creditors who is currently suing Kaisa. The creditor, Broad Peak Investment, filed a winding-up petition against Kaisa in the Hong Kong High Court after the company failed to pay onshore bonds worth 170 million yuan ($23.28 million).
Industry Crisis and Legal Battles
Kaisa is not alone in facing winding-up petitions, as numerous other Chinese developers have also been targeted due to the debt crisis that has plagued the sector this year. The financial turmoil has led to several companies defaulting on their debt obligations. While some developers have been ordered to wind up in overseas courts, Kaisa has managed to avoid such a fate so far. However, the company has yet to announce any plans for restructuring, despite defaulting on offshore debt two years ago.
Kaisa’s Dire Financial Situation
During the recent court hearing, Kaisa’s own filing revealed that the recovery rate for creditors would be less than 5% in a liquidation scenario. The company’s cash to short-term debt ratio was disclosed as 0.02, and it was confirmed to be cashflow insolvent. Kaisa’s lawyer argued that the bond contract falls under mainland Chinese law and that Broad Peak lacks the authority to initiate a winding-up procedure in Hong Kong. The judge granted a 28-day period for both parties to provide new expert evidence regarding the petitioner’s authority.
Implications for China’s Economy
Kaisa, based in Shenzhen, was the first Chinese property developer to default on its dollar bonds in 2015, leading to a major restructuring. Now, the company finds itself at the forefront of the latest property sector debt crisis, which is significantly impacting China’s economy. With a staggering $12 billion of offshore debt, Kaisa is one of China’s largest issuers of offshore debt among developers, second only to Evergrande Group. As of June, the company had total liabilities of 232.5 billion yuan ($31.91 billion), including 37.6 billion yuan ($18.88 billion) in total borrowings.
While the future remains uncertain for Kaisa and its creditors, the company’s financial troubles underscore the challenges faced by the Chinese property development industry at large.