HONG KONG (Reuters) – Struggling Chinese property developer Kaisa Group said creditors would get less than 5% of their money back if it is forced into liquidation, a lawyer for one creditor who is suing the company told a Hong Kong court on Tuesday.
Broad Peak Investment filed a winding-up petition against Kaisa in July in the Hong Kong High Court in relation to non-payment of onshore bonds worth 170 million yuan ($23.28 million).
Many other Chinese developers are also facing winding-up petitions filed after the sector plunged into a debt crisis in 2021, resulting in many firms defaulting on their debt obligations. So far only a couple have been ordered to wind up by overseas courts.
The first Chinese property developer to default on its dollar bonds in 2015 and undergo a restructuring, Shenzhen-based Kaisa was also among the first developers to default in the latest property sector debt crisis, which is weighing heavily on China’s economy.
However, nearly two years after its default on offshore debt, Kaisa has yet to announce a restructuring plan.
At the hearing on Tuesday, barrister James Wood, representing the petitioner, cited a statement that Kaisa filed with the court, saying the recovery rate would be less than 5% in a liquidation scenario, its cash to short term debt ratio is 0.02 and that it is cashflow insolvent.
Kaisa has applied to strike out the petition, with its lawyer arguing in court the bond contract is under mainland Chinese law and Broad Peak does not have the authority to commence a winding up procedure in Hong Kong. Hong Kong is a special administrative region of China but maintains its own legal system.
Judge Linda Chan gave the parties 28 days to provide new expert evidence on whether the petitioner has the authority.
She also asked Kaisa to submit an update on its restructuring progress before the next hearing in a date to be decided later.
With $12 billion of offshore debt, Kaisa is China’s largest issuer of offshore debt among developers after China Evergrande Group.
It had 232.5 billion yuan ($31.91 billion) of total liabilities as of the end of June, including 37.6 billion yuan ($18.88 billion) of total borrowings.
($1 = 7.2872 Chinese yuan renminbi)
(Reporting by Clare Jim; Editing by Kim Coghill)
