Chinese Stocks Give Up 2015 Gains, Plunge On Kaisa Default Fears

The last session in China on Friday provided an epic roller-coaster as exuberant retail BTFD'ers met their match with fading inflation and surging default risk concerns. The Monday session has opened to more of the same - with the Shanghai Composite opening down another 1.3% and erasing all the year's gains. As Shanghaio Daily reports, the Chinese property developer Kaisa Group Holdings (that we have discussed in detail here and who's next here) failed to repay a US$26 million bond coupon, making it the first Chinese property firm to default on dollar bonds.



Friday's plunge in stocks continues...


As Shanghai Daily reports, Chinese property developer Kaisa Group Holdings Ltd failed to repay a US$26 million bond coupon on Thursday, making it the first Chinese property firm to default on dollar bonds.

The market had speculated that Kaisa would likely default on this 2020 HSBC bond coupon after it defaulted on an earlier HSBC facility in December. A CreditSights report written on Wednesday said that Kaisa will have a 30-day grace period to resolve the current situation if it were to default.


The resignation of Kaisa’s Chairman Kwok Ying Shing on December 31 triggered a default on the HK$400 million (US$51.6 million) facility from HSBC Holdings Plc. Chief Financial Officer Cheung Hung Kwong and Vice Chairman Tam Lai Ling had also quit earlier.


Shenzhen-based Kaisa declined to comment on its debt problem but warned last week in a statement that it may default again after it failed to repay the HSBC debt.


Meanwhile, authorities blocked four projects of Kaisa in Shenzhen, Guangdong Province, on suspicions that Kwok was related to a local corruption case.


Kaisa has dealings totaling 14 billion yuan (US$2.3 billion) with 11 financial institutions, and at least three of them have applied to a court in Shenzhen yesterday to seize Kaisa properties, said Wind Information Co.

As we concluded 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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It seems stocks are catching on fast...