Kaisa Pleads for Banks’ Support in Liquidity Crunch During Meeting with Govt. Think Tank, Financial Institutions, Local Peers in Shenzhen

Relevant Document:
Meeting Summary

Management of Kaisa Group said during a meeting held between central government think tank the Development Research Center of the State Council and several local real estate developers Monday, Nov. 8, that Kaisa’s liquidity is “very tight” and it has lost its investment capacity, according to a written summary of the meeting seen by Reorg and sources who were briefed on the matter and confirmed the authenticity of the document. Continue reading for more on Kaisa Group's tight liquidity from Reorg's Asia Core Credit team, and request a trial to read more breaking news as well as financial and legal analysis on China stressed / distressed real estate sector. 

The meeting yesterday was attended by several developers including Kaisa, China Vanke and Excellence Group as well as representatives of Ping An Bank, China Resources Trust, Southern Asset Management, CITIC Bank and China Construction Bank in Shenzhen.

Li Haiming, co-president of Kaisa, said at the meeting that the company is facing significant difficulty as bond defaults and recent rating downgrades have led to domestic banks suspending and withdrawing credit lines to the company. Without outside help, Kaisa will struggle to deliver unfinished projects, repay wealth management products and pay suppliers and workers, Li said.

Pleading for bank lenders’ support, Li said some banks have illegally transferred funds from Kaisa's bank accounts and asked the regulators to centralize all lawsuits against Kaisa in the Shenzhen Intermediate People's Bank in a similar arrangement for China Evergrande Group in order to prevent trust loan lenders from freezing its assets.

Li added that Kaisa is also struggling to maintain a high turnover rate despite recording a 34% year-over-year growth in sales to RMB 87.5 billion this year so far due to price cuts and high agency fees.

Li said at the meeting that regulators should encourage state-owned enterprises to acquire property projects from struggling private developers or come in as strategic investors in order to help improve the private developers' cash flow. He also asked that implementation of the proposed property tax scheme be postponed for at least one year.

China Vanke’s board secretary Zhu Yu, who also attended the meeting, suggested that regulators relax restrictions on direct lending and equity financing and accelerate the approval process for asset-backed financial products such as real estate investment trusts and residential mortgage-backed securities.

While Vanke has sufficient cash on hand and a relatively low debt ratio, monthly contracted sales have declined by more than 30% year over year in the last two months, worse than during the 2008 global financial crisis, according to Zhu. Supplies in the first and second-hand housing markets in Shenzhen also declined to historical lows since September 2012.

Kaisa and China Vanke declined to comment for the article.

The capital structure of Kaisa is below: