Chinese promoter Kaisa asks for help and the Fed warns of the risk of a global contagion

The Chinese real estate sector suffered a new shock on Tuesday, after the Kaisa Group made a desperate request for help and the US Federal Reserve (Fed) sent its first direct warning that the crisis could cause global damage.

Builders’ bonds fell again after sources in China said that Kaisa, which was the first of its developers to default in 2015, had said in a meeting with a group of experts from the government and some of the banks. and real estate companies in the country that needed help to pay creditors, workers and suppliers.

Bonds from other large companies also slumped, with R&F Properties and China Vanke – considered one of the strongest companies in the industry – posted their biggest drops.

The outbreak came just hours after the US Federal Reserve warned that the problems could pose a global risk.

“Given the size of China’s economy and financial system, financial stress in China could strain global financial markets, through a deterioration in risk appetite, and pose risks to global growth.“Said the Fed in its financial stability report.

The liquidity shortage was highlighted by Fitch, which on Tuesday downgraded Kaisa to near default, citing deteriorating finances, difficulties selling assets and the undeclared debt of its wealth management unit.

“We sincerely ask investors to give Kaisa more time and patience”He said in a statement on his official WeChat messaging app account on Monday.

Begging for help

Kaisa is China’s 25th developer by sales, but only Evergrande, the symbol of the country’s real estate crisis, has to pay off more bond debt next year.

In the morning, Kaisa attended a meeting with an expert group from China’s powerful State Council with real estate developers and banks in the city of Shenzhen, a well-positioned source told Reuters.

Although the think tank makes policy proposals on China’s national development and its economy, it is not a decision-making body.

At the meeting with the Shenzhen-based State Council Development Research Center, Kaisa, state-owned companies were urged to help private companies improve their liquidity by acquiring projects and strategic purchases, he said. the fountain.

Other participants in the meeting included China Vanke, Ping An Bank, China Citic Bank, China Construction Bank and CR Trust, according to the source.

The developer said that some financial institutions had improperly transferred funds from their account and urged that all lawsuits seeking freezing of their assets be processed centrally in a Shenzhen court.

Vanke, Kaisa and Citic Bank declined to comment. Excellence and the other banks that participated in the meeting did not immediately respond to requests for comment.

The Information Office of the State Council also did not respond to a request for comment. The source declined to be identified due to the sensitivity of the matter.

Upcoming deadlines

The problems in the Chinese real estate sector have unsettled global markets and prompted a string of authorities in Beijing to try to calm things down, ensuring that the debt crisis will not spiral out of control.

Indebted developer China Evergrande Group has rocked global markets as it grapples with liabilities of more than $ 300 billion, which, if left unmanaged, could create systemic risks for the Chinese financial system.

Beijing is spurring state-owned companies and developers with government backing to buy up some Evergrande assets, sources with knowledge of the matter previously told Reuters.

Twice in October, Evergrande narrowly avoided catastrophic defaults on its $ 19 billion worth of bonds in the international capital markets by paying off coupons just before its grace periods expired.

One of these periods expires on Wednesday, November 10, for more than $ 148 million in coupon payments that were due on October 11. Evergrande must also make coupon payments totaling more than $ 255 million on its June 2023 and 2025 bonds on December 28.