Kaisa Group warns of under 5% recovery rate in potential liquidation

Facing severe financial difficulties, Kaisa Group, a prominent Chinese property developer, has forewarned creditors of a less than 5% recovery rate, should the company be driven into liquidation. This was the chilling forecast laid out by a legal representative for one such creditor who is currently pursuing a lawsuit against the beleaguered company. The revelation was made in a Hong Kong courtroom on Tuesday.

Broad Peak Investment Advisors had previously initiated a winding-up petition against Kaisa Group in July, taking the fight to the Hong Kong High Court. This was due to non-payment of onshore bonds amounting to 170 million yuan (876 million baht).

Broad Peak Investment Advisors’ move against Kaisa is part of a larger pattern that has seen a number of Chinese developers face winding-up petitions after the sector was rocked by a debt crisis in 2021.

Kaisa Group, which is China’s largest issuer of offshore debt amongst developers after China Evergrande Group, holds a staggering US$12 billion (443 billion baht) in offshore debt. The company’s total liabilities as of the end of June were 232.5 billion yuan (1.2 trillion baht), with total borrowings amounting to 37.6 billion yuan (191 billion baht).

The Shenzhen-based Kaisa Group was the first Chinese property developer to default on its dollar bonds in 2015, and consequently undertake a restructuring.

It was also amongst the first developers to default in the most recent property sector debt crisis, which has been a significant burden on China’s economy. Despite nearly two years having passed since its default on offshore debt, Kaisa Group has not yet unveiled a restructuring plan.

Winding-up petition

During Tuesday’s hearing, James Wood, the barrister representing the petitioner, quoted a statement that Kaisa had submitted to the court. According to this statement, the recovery rate in the event of liquidation would be less than 5%, the company’s cash-to-short-term debt ratio stands at 0.02, and it is cashflow insolvent.

Kaisa is contesting the winding-up petition, with its legal representative arguing that the bond contract is subject to mainland Chinese law.

It further argues that Broad Peak does not have the legal authority to start a winding-up procedure in Hong Kong. Hong Kong, while being a special administrative region of China, retains its own legal system.

Judge Linda Chan has granted both parties 28 days to present new expert evidence concerning the petitioner’s authority. Additionally, she has requested Kaisa to provide an update on its restructuring progress prior to the next hearing, the date of which is yet to be determined.

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