Date
24 November 2017
Nearly completed buildings at Kaisa Plaza tower over an expressway in Beijing. Kaisa's default earlier this year has triggered fears of a contagion in the Chinese property market. Photo: Bloomberg
Nearly completed buildings at Kaisa Plaza tower over an expressway in Beijing. Kaisa's default earlier this year has triggered fears of a contagion in the Chinese property market. Photo: Bloomberg

China bond market survives Kaisa default

Kaisa’s default on bond payments earlier this year triggered fears of contagion in the Chinese real estate sector.

But after the initial shock, bond prices have recovered and investors are once again lending billions of dollars to Chinese homebuilders, the Financial Times reported.

And yet its impact is still being felt in the country’s property market. The sector has continued to weaken despite two interest rate cuts by the People’s Bank of China.

Since the default of the Shenzhen-based builder was widely reported in China and overseas, several developers have reported sharp declines in sales or abrupt executive departures, the newspaper said.

“It appears we’re nowhere close to the property market really beginning to turn around,” Kenneth Akintewe, investment manager at Aberdeen Asset Management, was quoted as saying.

On Tuesday, Standard & Poor’s downgraded Kaisa to “D” for default, after it missed two bond coupon payments. The company’s ability to reach a quick deal with creditors remains “highly uncertain”, the rating agency said.

However, the bond market has proven to be resilient. The JPMorgan Asian credit index has risen 2.1 percent this year, and even the high-yield segment, which is dominated by Chinese real estate companies, is up 1.5 percent, FT said.

The sector has also resumed its debt issuances, raising more than US$3.5 billion in new borrowings since Kaisa defaulted, according to Dealogic.

“Chinese real estate debt has rebounded surprisingly quickly,” said Haitham Ghattas, head of Asian high-yield capital markets at Deutsche Bank. “That it can deal with a credit event like this does seem to demonstrate that the market has matured to some degree.”

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