A Hong Kong investment firm is suing mainland builder Kaisa Group Holdings to recover $102.3 million in unpaid principal and interest, in another blow to the severely indebted developer as China’s real estate crisis drags on.
Oasis Capital Management filed an action against Kaisa in Manhattan, saying the HKEX-listed developer defaulted and failed to make any payment on four bonds it issued which are owned by Oasis with a combined face value of $90 million, along with $12.3 million in total interest.
The loan’s guarantor, Chang Ye Investment Company, also failed to make payments on the notes, which matured in April through October 2022, with the principal and final semi-annual interest payment coming due at that time, Oasis said.
The unpaid debt includes notes of $6.6 million, $54.1 million, $19.8 million, and $9.5 million. The notes bear interest of 11.25 percent, 8.50 percent, 8.65 percent, and 11.95 percent, respectively, according to the Wednesday filing with the New York County Supreme Court.
With $12 billion of offshore debt, Shenzhen-based Kaisa is China’s second-most indebted developer in offshore markets after China Evergrande Group. The legal action by Oasis adds to Kaisa’s woes after the developer defaulted on $400 million in US dollar bonds in December 2021 and the Hong Kong stock exchange suspended trading of Kaisa’s shares in April of last year.
After its initial default, Kaisa embarked on the process of restructuring some of its offshore debt, and the company made progress in shedding some of its $18 billion total debt burden, in part by selling five Shenzhen projects worth more than RMB 60 billion ($8.9 billion) to state-run conglomerate CITIC.
But Kaisa reportedly delayed negotiations with offshore bondholders that were expected to kick off in October, citing uncertainty in China’s property sector, according to Reuters. Moody’s Investors Service and Fitch Ratings both withdrew their credit ratings for Kaisa last year as the company stopped participating in the ratings process.
Led by Seth Fischer, Oasis invests globally across various strategies with a focus on Asia. The firm was involved in Kaisa’s struggles last year, when it reportedly purchased from Deutsche Bank a roughly 20 percent stake in Shenzhen property developer Nam Tai Property, which had previously been held by Kaisa, according to a Financial Times report.
Deutsche Bank had seized the shares from Kaisa Group after it defaulted on a loan from the bank in 2021. The German lender’s intervention formed part of a complex battle for control of Nam Tai, which also involved New York-based fund IsZo Capital Management and American billionaire Peter Kellogg.
Chinese developers including Kaisa, Evergrande, and Sunac China Holdings defaulted on more than 140 bonds in 2022, according to a Bloomberg analysis, as Beijing restricted their access to credit in a bid to deleverage the debt-strapped real estate sector. Missed payments last year totalled $50 billion in onshore and offshore debt based on issuance amount.
In addition to its present challenges, Kaisa had the distinction of being the first Chinese developer to default on its dollar bonds back in 2015. Chaired by Kwok Ying-shing, the company owns over 220 projects across China, spanning residential, office, industrial, and mixed-use assets, according to its website.
Kaisa told the Hong Kong exchange last week that it was still finalising the audit work on its group results for 2021 and the six-month review for the first half of 2022.