Chinese developer Kaisa is being sued over onshore bonds

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A Singapore hedge fund has filed a petition in Hong Kong to shut down defaulting developer Kaisa, one of the first cases dealing with the Chinese developer’s mainland debt following a collapse in the property sector in the country.

The court filing by Hong Kong hedge fund Broad Peak Investment Advisors comes during a liquidity crunch for Chinese property developers. The collapse of this sector has affected China’s economy, which is on the verge of deflation.

Several Chinese developers listed in Hong Kong, 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 loans, Broad Peak’s petition relates to non-payment of Rmb170mn ($24mn) in onshore bonds.

“It’s certainly interesting,” said Nicolas Chen, an analyst at CreditSights in Singapore. “(It shows) the kind of impatience and desperation even onshore creditors have with some of these developers over restructuring or lack thereof.”

As a wave of Chinese developers begins to default in late 2021, international investors have been caught in lengthy and opaque restructuring processes to try to recover some of their investments.

An investor told the Financial Times that the matter is being closely monitored by offshore bondholders to see how onshore claims will affect the international restructuring process.

“Onshore lenders are usually the ones that will be first in line for liquidated assets,” Chen said. “This could be a case where these onshore creditors are trying to accelerate and get some sort of recovery.”

Casa said in a filing to the Hong Kong Stock Exchange on Monday that it would “explore legal remedies to vigorously oppose the petition” and would continue to work with offshore creditors on a restructuring plan. Broad Peak declined to comment.

Kaisa’s Hong Kong shares, which were already at their lowest since trading resumed in March after nearly a year’s suspension, closed more than 15 percent lower on Monday. A court hearing has been set for September 13.

The company was one of the first to default at the end of 2021 as the infection spread in the sector. The developer had total liabilities of more than Rmb200bn as of last year.

In January, Casa was sued in New York by Hong Kong-based Oasis Capital Management, claiming it defaulted on nearly $102 million in principal and interest associated with four bonds worth $90 million.

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