Chinese developer Kaisa hit by lawsuit over onshore bonds

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A Singapore hedge fund has filed a petition in Hong Kong to wind up defaulted developer Kaisa, marking one of the first cases dealing with a Chinese developer’s mainland debt following a property sector meltdown in the country.

The court filing by hedge fund Broad Peak Investment Advisers in Hong Kong comes during a liquidity crunch for Chinese property developers. The sector’s collapse has dragged on China’s economy, which is teetering on the brink of deflation.

A number of Hong Kong-listed Chinese developers including Evergrande, the world’s most indebted property developer, are battling winding-up petitions in Hong Kong. But while most other petitions involve offshore dollar-denominated debt, Broad Peak’s petition concerns the non-payment of Rmb170mn ($24mn) in onshore bonds.

“It’s definitely interesting,” said Nicholas Chen, an analyst at CreditSights in Singapore. “[It shows] the kind of impatience and frustration that even onshore creditors are having with some of these developers’ restructuring or lack thereof.”

Since a wave of Chinese developers started defaulting in late 2021, international investors have been mired in drawn-out and opaque restructuring processes to try to recover some of their investments.

One investor told the Financial Times that the case was being closely watched by offshore bondholders to see how the onshore claims would impact the international restructuring process.

“Onshore creditors are typically the ones that would be the first in line to assets that would get liquidated,” Chen said. “It could be the case where these onshore creditors are trying to speed up and get some kind of recovery.”

Kaisa said in a Monday filing to the Hong Kong stock exchange that it would “seek legal measures to resolutely oppose the petition” and continue to work with offshore creditors on a restructuring plan. Broad Peak declined to comment.

Kaisa’s Hong Kong shares, which were already at an all-time low after trading resumed in March following almost a year of suspension, closed down more than 15 per cent on Monday. A court hearing has been set for September 13.

The company was among the first to default in late 2021 as contagion spread through the sector. The developer had total liabilities amounting to more than Rmb200bn as of last year.

In January, Kaisa was hit with a lawsuit in New York by Hong Kong-based Oasis Capital Management, which claimed non-payment of about $102mn in principal and interest involving four of its bonds worth $90mn.

Evergrande, the only developer with more international debt than Kaisa, unveiled its offshore restructuring plan in March. Part of the plan included providing bondholders with access to offshore assets listed in Hong Kong.