China developer Kaisa says partners to demand US$193 million refund as company's bonds dive

HONG KONG (Reuters) - Chinese developer Kaisa Group Holdings Ltd said on Tuesday that partners of two of its urban redevelopment projects in the southern city of Shenzhen planned to terminate cooperation deals and demand a refund of 1.2 billion yuan (S$260 million).

The announcement came just days after Kaisa warned it may default on more debt, having failed to repay HSBC a HK$400 million (S$68.71 million) loan, the latest developer to flag financial difficulties amid a downturn in China's real estate sector.

A lender affiliated with both the projects' partners declared that fees, interest and all other amounts outstanding are immediately due and payable, Kaisa said in a filing to the Hong Kong bourse.

It did not identify the project partners or the lender.

"The company is currently assessing the overall impact on the financial position of the group as a result of the above notices and the above repayment obligations of the group,"Co-Chairman Sun Yuenan said.

Apart from HSBC, the company said it had not received any notice or demand from any creditor for repayment.

Standard & Poor's cut its rating by seven notches to selective default "SD" and its bonds took yet another dive on Tuesday.

All of Kaisa's outstanding bonds were indicated lower by 11 to 17 points this morning across maturities.

Investors remain unclear about its financial position and are worried about a cross default following its failure to repay the HSBC loan, which could lead to bondholders calling their bonds.

A cross default clause is common in bond and loan covenants that puts the borrower in default if it defaults on another obligation.

The market is keenly watching its next coupon payment this week on the company's bonds maturing in 2020.

That bond has crashed to a bid price of 30 cents on the dollar from an early December level of around 104. "If they fail to repay the US$51.6 million HSBC loan, can they pay the coupon this Thursday?" Deutsche Bank analyst Jacphanie Cheung said in a note, recommending selling the bonds on growing cross default risk.

Shenzhen-based Kaisa, with a market value of HK$8.2 billion, is one of the smaller listed developers, and has also been hit by departures of senior management.

Trading in Kaisa shares has been halted since Monday last week and the yield on bonds due 2018 has risen to more than 45 per cent from around 9 per cent at the beginning of December.