SHANGHAI/BEIJING/LONDON (Reuters) – China’s property sector suffered a fresh pounding on Tuesday as Kaisa Group made a desperate plea for help and the U.S. Federal Reserve sent its first direct warning that the crisis could cause global damage.
Builders’ bonds were sold off again after sources in China said Kaisa, which was the first of its developers to default back in 2015, had told a meeting with a government think-tank and some of the country’s banks and property firms that it needed help to pay its loans, workers and suppliers.
Other big firms’ bonds were tumbling too, with those of R&F Properties and China Vanke – seen as one of the sector’s most solid firms due to partial state ownership – seeing their biggest falls on record.
The flare-up came just hours after the U.S. Federal Reserve warned the troubles could pose global risks.
“Given the size of China’s economy and financial system… financial stresses in China could strain global financial markets through a deterioration of risk sentiment, (and) pose risks to global economic growth,” it said in its financial stability report.
Underscoring the liquidity crunch, Fitch downgraded Kaisa closer to default on Tuesday, citing its deteriorating finances, struggle to sell assets and undisclosed debt in its wealth management unit.
“We sincerely ask investors to give Kaisa Group more time and patience,” the firm said in a statement on its official WeChat account late on Monday.
CRY FOR HELP
Kaisa is only China’s 25th largest developer by sales but only Evergrande, the poster child for the current crisis, has a bigger bond repayment bill next year.
It attended a meeting on Monday with the Development Research Center of the State Council, other developers and lenders in the southern Chinese city of Shenzhen, one well-placed source told Reuters.
The think-tank makes policy proposals on China’s national development and its economy, but is not a decision-making body.
At the meeting, Shenzhen-based Kaisa urged state companies to help struggling privately run peers by buying some of their projects and making other strategic purchases, the source added.
Participants at the meeting included China Vanke, Ping An Bank, China Citic Bank, China Construction Bank, CR Trust, Southern Asset Management and developer Excellence Group, according to the source.
They added that Kaisa had told the meeting it was facing significant difficulties and that some financial institutions had transferred funds from its accounts. It also urged that all lawsuits seeking to freeze its assets be handled centrally in a Shenzhen court, the source said.
Kaisa, Vanke, Citic Bank declined to comment. Neither Excellence, the other banks that participated in the meeting nor the State Council Information Office immediately responded to requests for comment.
(GRAPHIC: China property woes worsen – )
China’s property woes rattled global markets in September and October. There was a brief lull in mid October after Beijing officials tried to reassure markets that the crisis would not be allowed to spiral out of control, but concerns have reemerged.
“The problem is, it is getting systemic,” said Viktor Szabo, a London-based EM portfolio manager at ABRDN, saying many Chinese property developers could no longer access borrowing markets and get financing.
“The big issue is that we don’t know what (Beijing’s) ultimate plan is… And now long can you hold on to the view that China can handle it?”
Trading in shares of Kaisa and three of its units was suspended last week, a day after an affiliate missed a payment to onshore investors.
Evergrande, the world’s most indebted developer, meanwhile has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds.
Another already-overdue bond payment must be made on Wednesday and it has coupon payments totalling more than $255 million on its June 2023 and 2025 bonds on Dec. 28.
Beijing has been prodding government-owned firms and state-backed property developers to purchase some of Evergrande’s assets to try to control the fall.
Its shares ended higher on Tuesday after it sold a $52 million stake in HengTen Networks Group, taking its total fundraising from selling down its holding in the Chinese internet services provider since Nov. 4 to $144 million.
Separately, shares of small developer China Aoyuan jumped more than 6% after Infini Capital told Reuters on Tuesday it has been accumulating stakes in the firm’s property management unit Aoyuan Healthy Life Group and was now its second-largest shareholder.
($1 = 7.7840 Hong Kong dollars)
Reporting By Samuel Shen, Cheng Leng and Tony Munroe; Additional reporting by Joy Leung and Clare Jim in Hong Kong and Marc Jones in London; Writing by Anne Marie Roantree; Editing by Kim Coghill, Muralikumar Anantharaman and Jan Harvey