Chinese Developer Kaisa Sinks Deeper Into Junk as Deadlines Loom

(Bloomberg) — Chinese developer Kaisa Group Holdings Ltd.’s credit rating was cut further into junk territory Tuesday by Fitch Ratings, which cited increasing risks that the company could default on dollar bonds.

Kaisa’s long-term issuer default rating was downgraded two steps to CCC- from CCC+. Its notes fell further Tuesday, with a $400 million security due Dec. 7 indicated at distressed levels of about 44 cents on the dollar.

Signs of contagion from China’s embattled property sector are mounting amid a crackdown on leverage and a crisis at China Evergrande Group, the largest issuer of junk notes in Asia. Investors searching for the next flashpoint have been scrutinizing Kaisa in recent weeks. It is the nation’s third-largest dollar debt borrower among developers and was the first to default on dollar notes in 2015 before completing a debt restructuring the following year.

The builder has two interest payments coming due this week — $58.5 million due Nov. 11 and $29.9 million due Nov. 12. Its credit ratings had already suffered a series of downgrades from all three major rating companies in October, which triggered a sell-off of its shares and dollar securities.

Kaisa plans to dump property assets valued at almost $13 billion to raise capital after flagging liquidity stress and missed payments on investment products, people familiar with a briefing by its executives to retail investors said last week. Shares of Kaisa and several units including property management subsidiary Kaisa Prosperity Holdings Ltd. have been suspended since last week pending an announcement containing inside information.

“There has been slow progress on the sale of Kaisa’s property management arm, some existing residential projects and investment properties in Shenzhen, and urban renewal projects in China’s Guangdong province,” Fitch said in its statement Tuesday. “We believe these asset disposals are subject to execution risk, increasing the likelihood that the company will default on the interest payments due on its U.S. dollar bonds.”

The downgrade reflects Fitch’s view that Kaisa’s liquidity has deteriorated further, with credit risks high due also to “undisclosed debt from wealth-management products, potential pressure to address non-capital market debt, declining contracted sales and limited progress on asset disposals,” it said.

The pain in China’s offshore bond market has spread to safer debt in recent days. Investment-grade notes from the nation’s issuers slumped further Tuesday in their worst sell-off since April. Tech giants like Tencent Holdings Ltd. and financial firms also came under pressure.

Contact editor Bob Simison (hello@caixin.com)

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