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Chinese Developer Kaisa Officially Defaults, Restructures Debt
In January when we first brought news of one of China's largest developer's inability to cover interest payments on its debt, we raised the question of who's next. Now that it is official - China's first major developer to default on its US currency debt - and property prices are falling at a record rate, we suspect the likes of Wanda and Agile will also start to collapse once again (after being bid up incredibly amid China's latest exuberant bubble).
As one analyst noted, now that Kaisa has officially defaulted, “You never know where the skeletons in the closet are or what company will be next."
- *KAISA DEFAULTS AFTER CHINA DEVELOPER SAYS CAN’T PAY DOLLAR DEBT
- *KAISA TO CONTINUE TRYING TO REACH CONSENSUAL RESTRUCTURING
- *KAISA SAYS DIDN'T PAY INTEREST DUE MARCH 19 ON 2018 NOTES
- *KAISA SAYS FOCUSING ON RELEASING 2014 AUDITED RESULTS
Kaisa 2018 bonds have ripped back from 25c on the dollar to over 70 since the default fears began in January...
As the NY Times reported:
Kaisa’s debt problems underscore the slump in China’s property sector, which has been hit by the slowing economy and a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market. Government data released this week showed that average new-home prices fell in February at the fastest pace on record.
Under Kaisa’s current restructuring proposal, about $800 million of bonds originally due in 2018 would instead come due in 2023, and the interest would be cut to 5.2 percent from 8.875 percent.
Things only got worse in March when housing prices dropped to a new record low:
As for the bond restructuring proposal, with this accelerating default, it is likely that any pre-pack agreement is now again in flux.
Also as noted previously, (away from the exuberant equity markets):
“Everyone is rethinking risk right now and so are we,” said Singapore-based Brayan Lai, the head of research and money manager at One Asia Investment Partners. The credit hedge fund has about $200 million of assets. “There are uncertainties about Chinese companies” amid concerns over Greece and U.S. debt markets, he said.
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They should have gone into US solar energy and donated invested in 0bama's America
Is the stock still near all time highs?
I went to a [sort of strip] show one time in China and they also happen to have some new cars there. Honestly, the women models were so hot [slim, flowing silky black hair, smooth flawless complexion, legs so long and smooth I almost got lost along the way, ultra-minis that only THEY can wear, etc] that I seriously doubt any [heterosexual male] there took more then a glance at an auto. Even my gf regretted not being bi.
Too bad the new leaders may bag them up again in those Fugly Chairman Mao baggy greys and blacks.
http://www.msn.com/en-us/autos/auto-shows/cover-up-at-china-auto-show-as...
take another bonus boyz
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Building moar empty cities will help prevent this problem in the future. The central planners should know this. Somebody get Krugman on the line stat!
"a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market."
LOL, and what were those exactly?
Introduction of new taxes on having multiple houses, which led to many doing fake divorces...
There was also some other policies that were put into place that prevent one from owning too many investment properties.
$200 million of assets? That's the chumpiest hedge fund ever....at Bernaks hedge fund they probably spend that much for brunch/hookers and blow daily.
But the only difference is this is real earned money versus 1/0's generated from thin air....
It is?
at least there they defaut honestly without lots of gimmicks
I want to thank Credit Suisse for bringing this deal, without whose investment banking / capital markets team, we would be deprived of endless hours of fun. This sits just behind OGX in the stupidity factor but just behind some of the others that didnt actually make first coupon.
I want to thank all the investors who bought this deal, most of whom did ZERO research into Chinese legal recovery protcol and are now staring at some nice doughnuts. Fle this one next to China Forest.
And finally I want to thank all you pension holders who will discover that yours was invested in this rubbish and should take your so called PM to task.
More defaults. Totally BULLISH!!!!
<sigh...>
Looks like they do a good job of controlling the graph.
Why not just sell a bunch of stock..new issue and pay off your debts...its seems to be frothy in the stock market over there....just think if you could pick up a few thousand shares of a bankrupt Developer....to the moon I say..to the moon...
China has a mix of State Banks and Private Banks, including Western Private Banks. Denominating your debt in a foreign currency should be illegal.
Hudson:
“There is no inherent need for China to suffer a Western-style decline. In fact, the West’s own financial and real estate bubble was not inevitable. It is the result of financial and tax policies that reversed the progressive tax system that powered American and European prosperity before 1980, so the financial sector and bankers have obtained the lion’s share of gains over the past thirty years. China’s greatest challenge is to remain free of these financial and real estate dynamics that have plunged the Western and post-Soviet economies into debt and created a rentier over-class receiving income simply for ownership privileges, not for playing a productive economic role.”
“Real estate’s policy challenge: To tax land rent, or let it be paid as interest to the bankers”
http://michael-hudson.com/2013/07/china-avoid-the-wests-debt-overhead-a-land-tax-is-needed-to-hold-down-housing-prices/
“In sum, while China has followed Western advice to privatize and decentralize much of its economy, the West has gone much further in relinquishing planning power from the government to the banking sector. And although local Chinese councils have been allowed to obtain revenue by selling land to developers, generating fees in property rights, this has left the land’s rising site value free of taxes. The nominal land-lease payments are more in the character of registration rights than actual land taxes”
“To continue growing, China needs to keep its balanced socialized economy free of the West’s Bubble Economy and its descent into negative equity and debt peonage. This freedom is best achieved by adopting the classical policy of taxing land rent and other natural resource rent, and to regulate the price of basic infrastructure services and natural monopolies to keep their prices in line with necessary costs of production. This means avoiding “financialized” costs of production. Now that banking provides credit “freely” on computer keyboards, this function – and the interest it generates – should be kept in the public domain. Banks should be public institutions – and foreign banks should not be permitted except for bank branches performing a limited array of services, as long has been the case in the United States.”
My comments: I differ slightly with Hudson. It is better to nationalize the money, and keep banks private. But, a public bank can issue money without debt, and it can forgive loans. China’s state banks do forgive loans on a regular basis. Canada’s (BOC) also issued debt free from 1938 to 1974. Forgiving loans effectively releases Yuans and lets them float debt free. This forgiving action allows China to target industry (channel money) and makes China permanently efficient, thus Wall Street is enabled to take wage arbitrage forever, creating a two class U.S. society. Targeting of Solar Cell industry is a good example, it was invented in U.S. and is now gone. Channeling allowed U.S. knowledge to be transferred and monetized for low cost.
In beginning of first loan cycle, China’s Councils held land price down via this one time registration fee. In subsequent debt cycles, too much private bank credit money will be created and channel toward fixed supply (land) asset, making it bubble. Either a lot of “savings” needs to be in down payment, to prevent credit bubble, or site value tax needs to be in place.
The western disease is that Credit is 97% of the supply, and Credit in turn is related to FIRE. FIRE creates debt instruments against real estate, with insurance adding a smear of credibility to mortgage debts. Real Estate is 70% of credit creation, therefore credit money supply relates to finance and land. This type of money is a total mismatch to Industry and transaction needs of an economy. The West also untaxes financial gains (unearned income) and taxes earned income, creating disincentives for labor to be productive.