Bringing down the house

7 January 2015 By John Foley Follow @johnsfoley

Stricken housebuilder Kaisa denies it has decided to wind itself up after defaulting on a loan. Even so, a debt restructuring looks inevitable. That will pit bondholders against banks and homebuyers who paid up front, and expose the flimsy structures foreign investors rely on.

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Kaisa Group on Jan. 7 issued a statement to deny reports that its board had resolved to wind up and restructure the company. The Chinese property developer has defaulted on a loan from HSBC after the departure of its chairman on Dec. 31 triggered a covenant breach.

Kwok Ying Shing, whose family owns 49 percent of Kaisa, resigned for health reasons, the company said in December. His departure was followed by the resignation of several other senior figures including finance director Cheung Hung Kwong.

Separately, two of Kaisa’s partners terminated their projects with the company on Dec. 31, saying it had breached the terms of their agreements. The partners are demanding fee refunds worth a total of 1.2 billion yuan ($193 million).

Kaisa had 64 billion yuan of housing completed or under development at the end of June. It had 30 billion yuan of total borrowings, including 15.3 billion yuan of bonds and convertible notes.

The company’s offshore bonds due in 2016, which carry a coupon of 8.9 percent, were trading at 31 percent of face value on Jan. 7, according to Eikon.

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