“You never know where the skeletons in the closet are or what company will be next," warns one Chinese credit analyst as the CNY30 billion indebted Chinese developer Kaisa Group (that we initially discussed here) admits it can’t say if it plans to meet a bond deadline today. The builder of residential communities and shopping centers must pay about $26 million in interest on its 10.25 percent 2020 debentures today (which appears unlikely) and its bonds have crashed to below 30c. The big question, as Bloomberg notes, is who's next?

Kaisa's capital structure (over CNY30 billion in debt) not so different from every other massively levered Chinese developer...

As Bloomberg reports, we are at the deadline for Kaisa...

Kaisa Group Holdings Ltd., the Chinese developer that defaulted on a loan last week after its chairman departed, can’t say if it plans to meet a bond deadline today as a local news website said lenders took steps to preserve assets.

The builder of residential communities and shopping centers must pay about $26 million in interest on its 10.25 percent 2020 debentures today, according to the prospectus. The developer can’t answer the question of whether it plans to meet the payment, Lin Yikang, in the company’s media and public relations management department, wrote in an e-mailed reply.

 

The notes fell to a record closing low of 29.9 cents on the dollar yesterday and were at 32.1 cents as of 4:08 p.m. in Hong Kong, according to prices compiled by Bloomberg.

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So who's next?

China’s junk dollar notes have lost 3.9 percent in 2015, the worst start to a year ever in Bank of America Merrill Lynch indexes, after Kaisa Chairman Kwok Ying Shing resigned days after two other executives left their positions. Developers that rely on personal relations in securing land from the government are among the most at risk from President Xi Jinping’s local-government financing shakeup and anti-graft drive.

“You never know where the skeletons in the closet are or what company will be next,” said Charles Macgregor, head of Asia high-yield research at Lucror Analytics Pte, the Singapore-based independent credit researcher focused on high-yield markets. “There’s always been a bit of a corporate-governance premium on Chinese developers and that will increase because of the latest challenges.”

Failure to pay today's coupon, could mark the first default by a Chinese developer in the offshore bond market. Last March, Shanghai Chaori Solar Energy Science & Technology Co. became the first entity to default in the Chinese onshore note market.

“This year, aside from the usual worries about refinancing risk, we face the challenge of assessing the impact of a government clampdown on corruption and dealing with idiosyncratic risks,” said Raymond Chia, Singapore-based head of Asia credit research at Schroder Investment Management Ltd. The firm had $447.7 billion under management as of Sept. 30.

“We are not constructive” on Chinese property bonds, said Michael Ganske, London-based head of emerging markets at Rogge Global Partners Plc. His firm manages $55 billion bonds globally. “It’s just an overheated sector and probably one of the main weaknesses in the Chinese economy.”

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This seems to sum it all up nicely... (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.