Troubled Kaisa Group became on Monday the first Chinese property developer to default on its dollar bonds when it confirmed it had failed to pay a coupon on two senior notes.
Kaisa's defaults underscore the risk developers face in China's slowing property sector, which accounts for some 15 percent of China's GDP and is a major component of the Asian high yield universe.
Property companies listed in China or Hong Kong accounted for 61 percent, or $28.3 billion, of all high-yield bonds issued by Asian companies, excluding Japan and Australia, in the U.S. dollar market in 2014, according to Thomson Reuters data. Supply has all but disappeared this year amid the headlines from Kaisa.
Coupon payments on Kaisa's bonds due 2017 and 2018 were to be made on March 18 and March 19 respectively and the 30-day grace period expired over the weekend.
The Shenzhen-based company said in a statement that it did not make scheduled interest payments of $16.1 million on $250 million 2017 bonds and $35.5 million on $800 million 2018 bonds within 30 days after the coupons were due.
"The company will continue its efforts to reach a consensual restructuring of its outstanding debts," Kaisa said. "The company hopes to enter into standstill agreements with certain of its offshore debt holders as soon as practicable."
Kaisa bonds due in 2018, 2019 and in 2020 were last indicated around 55/60 cents on the dollar, down by 5-6 points before the announcement as traders were not expecting the coupon to be paid. Those levels give returns similar to those implied by the restructuring terms, analysts said.
Kaisa has failed in convincing its offshore bondholders last month with a debt restructuring plan that included a proposal for interest to be paid in cash only after 2017. Under the plan, the maturity on six sets of bonds due each year through to 2020 would be extended by five years and coupons would be slashed. There would, however, be no reduction in principal.
Rating agency Standard & Poor's downgraded Kaisa's credit rating on March 24 to D, saying it does not expect Kaisa would be able to restructure its onshore and offshore debt anytime soon.
Last week, Kaisa reinstated its founding chairman Kwok Ying Shing who had stepped down in December, days after the heavily indebted developer said authorities in its homebase Shenzhen had unblocked sales of several residential projects.
Traders said both events indicated Kaisa had likely reached an agreement with the authorities in the southern Chinese city, but might dim the prospects of a takeover deal by larger rival Sunac China.