Kaisa default fears hit property market

Kaisa Group, once a leading developer in Shenzhen, is now mired in a massive debt default and strenuously fighting doubts about its prospects, causing jitters about the overall health of China's housing sector.

The company's plight is rooted in its failure to repay a loan from HSBC due on Dec. 31, 2014 totaling 400 million HK dollars (51.6 million U.S. dollars), triggered by the resignation of it board chairman Guo Yingcheng in early December.

Credit rating giant Moody's downgraded Kaisa's corporate family and senior unsecured debt ratings to Caa3 from B3 Monday, with negative ratings outlook.

"The rating downgrades reflect Kaisa's heightened default risk following the default on its HSBC loan, which in turn will likely trigger a cross-default on its offshore bonds," a Moody's research note read.

Adding to the woes, media reports said late Tuesday a Kaisa board meeting had passed an agreement on going bankruptcy and reorganization.

The allegation was soon denied by Kaisa, saying in a statement that no such meeting was held and neither was there any agreement on reorganization.

The company's liquidity crisis struck market nerves during the past week, as the property sector had just experienced a difficult year amid a slowing Chinese economy.

Property investment and sales were both lackluster last year. Investment in the country's property sector rose 11.9 percent in the first 11 months of 2014, much slower than 19.8 percent reported for 2013, data from the National Bureau of Statistics showed.

Total area of commercial housing sales dropped 8.2 percent during the same period.

However, analysts with Guotai Junan Securities believe the Kaisa case is just an individual one and cannot represent the whole industry's credit situation.

The default was not triggered by the company's business operations, but more likely related to sudden changes in its management structure, the brokerage firm said in a note.

Zhang Dawei, chief analyst at real estate agency Centaline Property, said property market transactions heated up in the last quarter thanks to the government policy to loosen lending restrictions and a cut of interest rates by the central bank.

Centaline data showed the home sales of 54 cities in December reached 318,000 units, the highest monthly figure in 2014.

The rising trend is likely to continue in the first half of 2015, said Zhang.

Bank of Communications said in a report that China's property sector is bidding farewell to the "golden era" of high-speed expansion and entering a "silver era" of slower growth.

The market situation is transforming from short housing supply to basically balanced supply and demand, due to slowdown in China's urbanization process, relatively high inventory level and structural oversupply, the bank said.

With accumulative effects of favorable policies and sufficient liquidity, the housing market will see a soft landing and a rebound in sales and investment will be seen in 2015, according to the bank.

"However, the market will not recover its red-hot period of growth from 2009 to 2012," it added.