Chinese property developer Kaisa Group Holdings missed a payment on a wealth management product issued by a unit, a company source said on Thursday, adding to worries about a cash crunch at the debt-strapped firm.
Kaisa Finance in Shenzhen met with more than 100 investors earlier in the day to explain the situation, the person, who declined to be identified due to the sensitivity of the matter, told Reuters.
Shares of Kaisa Group plunged more than 14% on Thursday to an all-time low as poor October sales heightened worries about a liquidity crunch at the debt-strapped firm. The stock was down 14.29% at the close in Hong Kong trading.
The Securities Times reported on Thursday that investors gathered at Kaisa’s headquarters in Shenzhen. But the paper quoted Guo Yingcheng, chairman of the Kaisa Group board, as telling them the company had the “ability and method to repay”.
It said Kaisa Group acknowledged that the unit, Jinheng Wealth, had missed payments. Kaisa said it had communicated with Jinheng Wealth and resolved it would “resolutely fulfil its social responsibilities”.
Kaisa said “multiple unfavourable factors”, such as the severe downturn in the real estate market and downgrading of international rating agencies, had resulted in its liquidity encountering “unprecedented pressure”.
But the group would determine a redemption plan with Jinheng Wealth “as soon as possible and announce it to investors”, Securities Times reported.
Meanwhile, financial publication Cailanshe reported that Shenzhen regulators had called a meeting for Friday with Kaisa to discuss its wealth management products and the company’s liquidity issues. Another developer, Fantasia, would also attend, Cailanshe said.
Sales Drop in October
Kaisa announced late on Wednesday that contracted sales in October dropped 30.5% to 8.195 billion yuan ($1.28 billion) from a year ago, while sales in the first 10 months rose 23%.
The Shenzhen-based developer has the most offshore debt coming due over the next one year of any Chinese developer, after embattled China Evergrande Group.
Kaisa, which was downgraded by rating agencies last week, has around $3.2 billion in offshore senior notes due in the next 12 months, with the next maturity worth $400 million falling on December 7.
It is seeking buyers for its Hong Kong-listed property management unit, Kaisa Prosperity Holdings Ltd and two residential sites in the city, Reuters reported last week.
The worsening health of China’s $5 trillion property sector, a key economic growth driver, is testing Beijing’s resolve to press on with painful structural reforms such as reducing high debt levels.
Escrow Accounts to be Tightened?
Meanwhile, Beijing may tighten the management of home purchase payments held in escrow accounts to ensure the funds are used for property projects only, according to draft guidelines issued on Thursday.
Chinese developers can sell residential projects before construction, but are required to put funds in escrow bank accounts monitored by local regulators.
Under the proposed new rules, developers would not be allowed to get the funds back if their projects have quality problems, are not delivered on schedule, or violate laws.
Home buyers would not be permitted to sign a contract with the developer until they have put the entire deposit into escrow bank accounts, according to the draft rules published on the website of Beijing’s local housing regulator.
- By Reuters, George Russell and editing by Jim Pollard
This report was updated on November 4 with further details.