Yahoo Finance Major Chinese developer defaults on debt
Chinese real estate developer Kaisa Group Holdings defaulted on its dollar-denominated debt Tuesday. This sparked concerns among Western investors, who saw the company as a proxy for China's soaring real estate market, that losses will spread contagion.
The company announced in a statement that it failed to deliver $51.6 million of scheduled interest payments on 2017 and 2018 bonds. This comes as Kaisa has been negotiating a debt restructuring deal with its creditors.
The firm, which has delayed filing its 2014 audited financial results, said that it “will continue its efforts to reach a consensual restructuring of its outstanding debts. In view of the foregoing, the Company hopes to enter into standstill agreements with certain of its offshore debt holders as soon as practicable.”
“Real estate is a bubble in China,” says Kathy Boyle, CEO of Chapin Hill Advisors. “The Chinese government stepped in they're going to try to swap the debt out and put on some Band-Aids…they don't want this to be the first domino.”
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Boyle adds that China's real estate problems will likely hit other areas of the economy.
“75 percent of the average Chinese net worth is in real estate," she says. "In some of these countries there are multigenerational mortgages because they're so expensive. It does make up a large percentage and the average person could be hit again."
Yahoo Finance’s Aaron Task points out that many investors went into equities after China clamped down on speculation in real estate.
"Now the Chinese government is trying to dampen down speculation in the stock market," he says. "The Chinese government's going to allow local governments and the private companies to basically swap out their debt. So it's a bailout."
The Chinese government is in a strong position to provide stimulus, adds Task.
"They have three plus trillion dollars in foreign currency reserves, so they have a lot of firepower," he says. "I think we're going to see a lot more stimulus coming from the Chinese government to try to contain this bubble. Hopefully they want to slowly let air out, and not burst all at once."
