Chinese developer Kaisa hit with lawsuit over bond defaults

A Hong Kong investor filed a $100mn claim against Chinese developer Kaisa, signalling the mounting legal pressure on real estate companies that defaulted on their international debts last year during a sector-wide liquidity crisis.

In a filing in New York, Oasis Capital Management claimed it had received no repayment and is owed $102mn in principal and interest, citing four Kaisa bonds worth $90mn.

Kaisa, the second-most heavily indebted Chinese developer after Evergrande in offshore markets, defaulted in late 2021 as it battled to reduce its vast leverage.

A lack of progress in a series of protracted restructurings has frustrated international investors, who have frequently threatened legal action in response to the delays. Kaisa did not immediately respond to a request for comment.

Evergrande, which has $300bn in liabilities, around $20bn of which are held by international investors, has repeatedly missed deadlines to provide a restructuring plan. The company is this week meeting with investors in Hong Kong to update them on its progress.

The meeting is taking place at a time when continued weakness in the property market is dragging down China’s economy. Authorities are working to revive growth by relaxing policies, part of a broader effort to revive the economy following years of pandemic restrictions.

Beijing brought in its so-called “three red lines” measures to reduce leverage in 2020, which added to liquidity pressures on developers. But late last year it unleashed new credit lines from state banks for real estate companies it views as “high-quality”, giving the developers access to much-needed credit.

China’s property sector provides more than a quarter of economic growth in the world’s second-largest economy, which has weakened due to the combined effects of the crisis and the impact of the country’s zero-Covid policies before they were relaxed last month.

Developers that have not defaulted, such as Country Garden, the largest in China by sales, still need to contend with upcoming bond maturities.

Fitch, the rating agency, said this week that offshore sentiment towards China’s property sector “remains weak” and that the primary markets are “out of reach for almost all Chinese developers”.