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Global financial crash fears as a second Chinese developer faces default- next Evergrande?

Kaisa joins Evergrande in risking default after failing to meet an interest payment on its debt this week. In a filing to the Hong Kong stock exchange this morning Kaisa announced trading in shares in the company would be halted "pending the release by the company of an announcement containing inside information." It is unknown yet what this information is but the announcement comes after the firm was due to make a repayment of $400m (£303.31m) by Tuesday night. Global ratings agency S&P downgraded Kaisa's credit rating last month saying it faced an "inevitable" default scenario.
Despite being China's 27th largest developer in terms of sales Kaisa has managed to become one of the most indebted, second only to Evergrande.
Like Evergrande a default could trigger cross defaults across all of Kaisa's offshore debt which reportedly totals nearly $12bn (£9.1bn).
Craig Botham, Chief China+ Economist at Pantheon Macroeconomics said: "To me, this just highlights the widespread nature of the rot, and the pressure the entire sector is under.
"It’s less that one developer default leads to another directly, and more that there are many in the same boat as Evergrande."
Last week another developer, Aoyuan, also admitted it could not guarantee being able to pay its financial obligations.
Mr Botham predicted "we can expect a lot more defaults in 2022" when more debt payments are due.
He added further developer defaults would "worsen the pressure" by "hiking borrowing costs for survivors, and putting further downward pressure on property prices as they offload their inventories at larger and larger discounts."
Kaisa has already been selling off large numbers of assets in an attempt to raise cash.
The lack of a government bailout has also pushed Evergrande into a similar position with its billionaire chair Hui Ka Yan even selling personal assets such as paintings and properties.
Evergrande is now entering restructuring with government officials attempting to manage its collapse.
Similar attempts could be made with Kaisa which would see state-owned firms takeover construction projects and other commitments.
Founded in 1999 Kaisa focuses on urban renewal projects in China's southern Guangdong province, although it also had developments across the country.
Kaisa is no stranger to default having previously defaulted on an overseas debt worth an estimated $2.5bn (£1.7bn) in 2015.
A subsequent audit found considerable debt had been disguised as equity on balance sheets.
Despite this, it recovered considerably by 2017 with projects across the country and has been dubbed the 'king of urban renewal' by Chinese media.
Like many others in China's property sector, it has increasingly struggled this year though due to a government crackdown aimed at weaning the industry of debt.
express.co.uk

Dec 11, 2021 12:00
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