China property/Kaisa: fire sale could spark broader real estate price decline
Suspension of developer’s shares offers another signal of sector’s worsening debt crisis
Evergrande no longer tops the list of concerns for investors in Chinese real estate. Kaisa Group’s shares were suspended on Friday, after an affiliate of the Shenzhen-based developer missed an interest payment. This provides another signal of the rapidly worsening local property debt crisis.
The developer’s missed payments should worry the market more than the defaults last month by smaller peers including Fantasia, Sinic and Modern Land. Kaisa has more offshore debt than any local developer other than Evergrande. Of Kaisa’s roughly $11bn in dollar bonds, about a third come due in the next 12 months.
It helps that Kaisa’s assets sit mostly in prime locations such as Hong Kong and Shenzhen. Its reported plans to sell off real estate projects and its property management unit Kaisa Prosperity would help it cover the most urgent debt repayments, including the $400m due next month.
Yet as Evergrande has shown, sales of anything related to Chinese developers are proving difficult. Even the attempted sale of Evergrande’s profitable property management unit fell through despite government officials brokering the sale. It still struggles to find buyers for key property assets. The share price of Hong Kong-listed Kaisa has dropped almost three-quarters this year, reflecting the bleak outlook.
Worse, government support also looks increasingly unlikely. Restrictions on indebted developers make it difficult for them to borrow fresh funds for refinancing. Beijing has also signalled it has little intention of propping up the sector by expanding its trial plans for a property tax.
Kaisa has begun a fire sale of its assets in Shenzhen, mainland China’s priciest residential property market. This move could have a significant knock-on effect on real estate prices in the rest of the country.
Meanwhile, the property tax, at present being piloted in Shanghai and Chongqing, will roll out to other cities. The levy, which covers all residential and non-residential properties, will weigh on property prices and transactions. China’s real estate market still looks wobbly. Expect more cash flow difficulties for developers.
Gapping down
In reaction to earnings/guidance:
- PTON -32.9% (seeing a softer than anticipated start to DecQ), BLUE -24.6%, PBYI -23.5%, EBS -14.5%, TRHC -12.7%, AXNX -12.3%, CGNX -11.2% (also increases dividend), IRTC -9.4%, NVAX -9.2% (also completes rolling submission to WHO for listing of NVX-CoV2373), DKNG -8.6%, DVAX -8.5%, SWCH -7.7%, SLQT -7.2%, MITK -7.2%, PGNY -7.1% (also CEO to become Exec Chairman; names new CEO), TDC -6.8% (also announces collaboration with Amazon Web Services), REZI -6.1%, VIR -6.1%, APPN -5.9%, OLED -5.9%, MNDT -5.5%, FND -5.4%, BE -5%, ZGNX -5%, LTHM -4.9%, CVNA -4.9%, VLDR -4.8% (also names new CEO), UI -4.8%, MGA -4.6%, FSLR -4%, RGA -4%, SQ -3.6%, GSAT -3.6%, RKT -3.4%, AXON -2.7%, CGC -2.7%, CLNE -2.5%, WW -2.4%, BGS -2.3%, HMC -2.3%, GBT -2.2%, DNLI -2.2%, IOVA -2.1%, CMBM -2%, FATE -1.9%, GKOS -1.8%, AGO -1.7%, RUN -1.6%, ALTR -1.4%, TEN -1.4%, NPTN -1.3%, MTZ -1.2%, RDFN -1.1%, MDRX -1.1%, AGS -1.1%, MORF -1.1%, BEP -1.1%
Other news:
- DCPH -68.9% (top-line results from the INTRIGUE Phase 3 clinical study of QINLOCK did not meet primary endpoint)
- EVAX -44.2% (pricies follow-on public offering of 3428571 ADSs at a public offering price of $7.00 per ADS)
- CALA -42.1% (to terminate its phase 2 KEAPSAKE clinical trial based on a lack of clinical benefit observed in patients treated with telaglenastat in an interim analysis)
- NRXP -31.7% (FDA declines to issue EUA for ZYESAMI for patients with Critical COVID-19 respiratory failure)
- EBS -14.5% (discloses it and US government mutually agreed to terminate the US government contract)
- MNKD -13.7% (provides Technosphere Insulin dose updates)
- MRK -9.8% (following news of Pfizer's COVID-19 oral antiviral treatment update)
- MRNA -8.2% (following news of Pfizer's COVID-19 oral antiviral treatment update)
- NVAX -7.8% (following news of Pfizer's COVID-19 oral antiviral treatment update)
- BNTX -7.6% (following news of Pfizer's COVID-19 oral antiviral treatment update)
- REGN -7% (files mixed securities shelf offering)
- ABUS -6.2% (files for $250 mln mixed securities shelf offering; also stock offering)
- MRUS -6.1% (prices offering of 3859650 shares of common stock at $28.50 per share)
- MOS -5.6% (files for mixed securities shelf offering)
- TRNO -3.6% (prices offering of 3.5 mln shares of common stock at $74.50 per share)
- FTCI -2.1% (awarded first solar project in Africa)
- CDAK -2.1% (files for $300 mln mixed securities shelf offering)
- SNCR -2% (will supply its personal cloud solution to Telkomsel Indonesia's largest mobile operator)
- FATE -1.9% (files for $350 mln offering relating to sales agreement; also files mixed securities shelf offering)
- NMM -1.3% (names new CFO and COO)
- XM -0.7% (prices offering of 23809524 shares of common stock at $42.00 per share)
Analyst comments:
- NKLA -4.7% (downgraded to Neutral from Buy at BTIG Research)
- PZZA -3.6% (downgraded to Hold from Buy at Deutsche Bank)
- NOMD -1.9% (downgraded to Neutral from Buy at Goldman)
Gapping up
In reaction to earnings/guidance:
- GDYN +19.7%, BIGC +18%, CDXS +16.5%, BILL +16%, DDOG +15.9%, LGF.A +15.1%, FROG +14.8%, EXPE +13.7%, GPRO +11%, AMEH +10.8% (also names new co-CEO), CC +10.2%, CFLT +10.2%, AMCX +9.4%, ENDP +8.7%, FLR +8.4%, AMN +8.1%, BHF +7.4%, FNKO +6.9%, SYNA +6.8%, ATUS +6.7%, IHRT +6.7%, AOSL +6.5%, SHAK +6.3%, GOOS +6.3%, LYV +6.2%, YELP +5.9%, ABNB +5.8%, CHUY +5.4% (also announces new $50 mln share repurchase auth), NPO +5.2%, EOG +5.1% (also increases dividend, declares special dividend, authorizes share repurchase program), MP +4.9%, AL +4.8%, MELI +4.4%, NWSA +4.4%, ATSG +4.4%, FTNT +4.3%, NET +4.2%, PINS +4.1%, PRDO +4% (also extends stock buyback program), CABO +3.9%, MMI +3.9%, WSC +3.7%, KIM +3.6%, CVET +3.4%, NLOK +3.2%, MCHP +3.1% (also increases dividend), ANGI +3.1%, INGN +2.9%, GRPN +2.7%, VST +2.3%, LLNW +2.2%, UBER +2.1%, ERJ +2.1%, HTA +1.9%, OHI +1.9%, ILMN +1.9%, HTA +1.9%, TRP +1.9%, OUT +1.8%, OXY +1.7%, ALRM +1.7%, RBA +1.7%, PBA +1.6%, PBA +1.6%, ELAN +1.6%, GDOT +1.5%, MNST +1.5%, FRT +1.4%, NTRA +1.2%, CWK +1.2%, DK +1.1%, NKTR +1%, TMST +1%
Other news:
- AMEH +10.8% (names new co-CEO)
- MNR +10.8% (to be acquired by ILPT (ILPT) for $21.00 per share in an all-cash transaction valued at ~$4.0 bln)
- PFE +10.8% (COVID-19 oral antiviral treatment candidate reduced risk of hospitalization or death by 89% in interim analysis of Phase 2/3 EPIC-HR study)
- OCGN +8% (submission of Emergency Use Authorization request to the US FDA for investigational COVID-19 vaccine COVAXIN (BBV152) for children ages 2-18 years)
- CLMT +6.2% (UNVR and CLMT expand distribution agreement for petrolatums and white oils in Europe)
- LVO +4.2% (launching a new LiveOne Membership offering in 2022)
- HYRE +3.9% (announces expanded partnership to significantly increase car supply)
- PNW +2% (increases dividend)
- AMC +1.9% (to sell its popular AMC Theatres Perfectly Popcorn at non-movie retail locations)
- FIS +1.7% (AMTB announces new outsourcing relationship with FIS)
- FPI +1.7% (provides updates on the development of solar projects on certain of its farms in Illinois)
- REAL +1.5% (provides business update for October)
- SCOR +1.5% (announced an agreement for Univision to leverage Comscore's local audience measurement in three of the Company's newly acquired markets)
- NGCA +1.1% (Virgin Orbit to procure 20 flights of the LauncherOne rocket)
- ENVA +1.1% (authorizes $150 mln share repurchase plan)
- SNA +1% (authorizes $500 mln share repurchase program; increases dividend)
Analyst comments:
- VG +4.1% (upgraded to Overweight from Neutral at JP Morgan)
- IGMS +3.4% (upgraded to Outperform from Neutral at Wedbush)
- NS +1.1% (upgraded to Buy from Neutral at UBS)
- CWEN +1% (upgraded to Outperform from Perform at Oppenheimer)
- APO +0.9% (upgraded to Buy from Hold at Deutsche Bank)
- LITE +0.9% (upgraded to Buy from Neutral at Rosenblatt)
Early premarket gappers
- Gapping up:
- GDYN +20.4%, BIGC +19%, DDOG +17.4%, GPRO +16.9%, BILL +15.3%, CFLT +14.5%, FROG +14.3%, MNR +12.1%, LGF.A +11.8%, EXPE +11.4%, AMEH +11%, FNKO +8.7%, SHAK +8.5%, ENDP +8.3%, BHF +7.4%, SYNA +6.8%, IHRT +6.7%, NET +6.4%, CLMT +6.2%, CC +6%, YELP +5.9%, ABNB +5.8%, NVAX +5.6%, EOG +5.5%, CHUY +5.4%, QDEL +5%, PINS +5%, AL +4.8%, MP +4.7%, ATUS +4.7%, NWSA +4.4%, ATSG +4.4%, VIR +4.1%, MELI +4.1%, AMN +4%, PRDO +4%, CABO +3.9%, LYV +3.9%, LLNW +3.7%, FTNT +3.5%, CVET +3.4%, MCHP +3.3%, PCTY +3.3%, ANGI +3.1%, NTRA +3%, INGN +2.9%, EVC +2.3%, CUBE +2.2%, OHI +1.9%, GMAB +1.9%, FIS +1.7%, RBA +1.7%, PBA +1.6%, NKTR +1.6%, ILMN +1.6%, REAL +1.5%, NGCA +1.5%, GDOT +1.5%, CYRX +1.5%, MNST +1.5%, FRT +1.4%, CWK +1.2%, ALRM +1.1%, DK +1.1%, PNW +1%, SNA +1%, TMST +1%, GH +1%
- Gapping down:
- EVAX -40.9%, PTON -33.7%, PBYI -26%, NRXP -24.9%, EBS -14.5%, TRHC -12.7%, AXNX -12.3%, CGNX -11.3%, SLQT -9.8%, IRTC -9.2%, DVAX -9%, SWCH -7.9%, TDC -6.6%, LTHM -6.5%, APPN -6.1%, REZI -6.1%, MRUS -5.9%, OLED -5.7%, MITK -5.6%, MNDT -5.5%, BE -5.5%, FND -5.4%, ZGNX -5%, BGS -4.5%, SQ -4.4%, FSLR -4.4%, MDRX -4.4%, MOS -4.3%, RGA -4%, TRNO -3.9%, VLDR -3.6%, CNDT -3.4%, CLNE -3.4%, AVLR -3.4%, RKT -3.3%, DNLI -3.2%, BL -3.1%, MGA -3%, Y -2.9%, ABUS -2.8%, WELL -2.4%, HMC -2.4%, CVNA -2.3%, GBT -2.2%, FTCI -2.1%, CDAK -2.1%, SNCR -2%, CMBM -2%, FATE -1.9%, GKOS -1.7%, AGO -1.7%, NMM -1.3%, NPTN -1.3%, GSAT -1.2%, MTZ -1.2%, AGS -1.1%, MORF -1.1%, REGN -1%, RUN -1%, AMC -0.9%
China Evergrande, Strapped for Cash, Offloads Its Jets
The heavily indebted property developer sold two Gulfstreams last month as bond payments loomed
SINGAPORE— China Evergrande Group EGRNF 3.83% raised more than $50 million last month by selling two of its private jets, according to people familiar with the matter, bringing in much needed cash to help avert a default on its U.S. dollar debt.
American aircraft investors bought the planes, which were both Gulfstream jets, according to the people and a business aviation database. The sales closed in October, the same month that Evergrande made two overdue bond-coupon payments shortly before 30-day grace periods on them expired.
Shenzhen-based Evergrande recently owned at least four planes and has one more on order, according to online records and a person familiar with the matter. The property developer’s founder and chairman, Hui Ka Yan, splurged on luxury jets during the company’s heyday and used them to fly himself, Evergrande executives and others around the world. Other Chinese conglomerates like the formerly highflying HNA Group Co. also boasted flashy private jets with luxurious interiors.
The two Gulfstream jets Evergrande recently sold were its smaller aircraft. The company is currently seeking a buyer for a much larger Airbus ACJ330 wide-body jet, according to an advertisement for it.
That plane, for which Evergrande paid more than $220 million a few years ago, is sitting at Hong Kong International Airport, according to a person familiar with the matter. It has a highly customized “VVIP cabin interior” that includes a circular dining table surrounded by seats that can be converted into beds for sleeping, in addition to shower facilities, an entertainment lounge and bedrooms. It was designed to transport up to 40 passengers and 12 crew members. Commercial airlines often use Airbus A330 jets to fly more than 250 passengers.
Evergrande didn’t respond to a request for comment.
The company borrowed heavily and expanded aggressively for years, buying hundreds of parcels of land across China, building giant high-rise residential developments and selling many apartments years before they were completed. Evergrande also branched out into theme parks, healthcare services and electric vehicles. It bought a professional soccer team in its home province of Guangdong.
The spree left the Chinese property giant with the equivalent of roughly $300 billion in liabilities at the end of June, including about $20 billion in outstanding dollar bonds. Payments on several bonds are coming due over the next week.
Pre-pandemic flight records for one of Evergrande’s Gulfstream jets show it flew regularly from Guangzhou and Hong Kong to other major cities including London, Los Angeles and Boston. It also made trips to the islands of Saipan and Bali.
The company sold that plane, a five-year-old G650ER ultralong-range aircraft that can seat 15 passengers, for less than $40 million in late October, the people familiar with the matter said. The buyer was Earth Air Inc., a company backed by private aviation investors that operates out of Los Angeles and owns two similar Gulfstream jets.
Alex Joya, president and partner at Earth Air, confirmed his company recently purchased the plane but said he couldn’t disclose details of the transaction.
The other Gulfstream offloaded by Evergrande was an older jet that sold for roughly $15 million, according to a person familiar with the matter. The buyer was Aviation Sales Associates, which operates out of California. A company representative declined to comment on the transaction.
Cash flow problems mounted at Evergrande over the summer and its bond prices plunged to distressed levels, preventing the company from turning to the capital markets to raise more funds. On Sept. 23, Evergrande missed $83.5 million in coupon payments on about $2 billion in dollar-denominated bonds. Days later, it missed another $45 million coupon payment on $951 million in bonds. It then made good on both payments in late October.
When Will the Supply-Chain Strains Finally Ease?
Many companies are resetting strategies to plan for long-term stresses
Companies that have been scrambling to get goods into stores and distribution centers by the end-of-year holidays are now starting to take a longer view on when the gridlock that has tied up their supply chains might finally end.
It is a crucial question for retailers and manufacturers planning out capital spending, purchasing and production strategies for next year. Comments from corporate executives on recent quarterly earnings calls and interviews with logistics experts suggest expectations for relief increasingly are being pushed deep into 2022 and even beyond.
Large numbers of companies pointed to supply-chain constraints as a drag on earnings. There are growing signs that issues like port congestion, the difficulty in getting truck drivers, slowing supplier deliveries and rising costs for raw materials and components such as semiconductors are affecting the broader economy.
Companies including Clorox Co. , Majestic Steel USA, water heater manufacturer A.O. Smith Corp. and apparel retailer Under Armour Inc. are undertaking changes in operations and sourcing that will last past the current bottlenecks, signaling that stopgap measures responding to raw materials shortfalls and transportation logjams are being embedded into ongoing operations.
“We feel that the supply chain constraints will continue to be in the market all the way to the second half of calendar year 2022 before we see them abating,” Tarek A. Robbiati, finance chief at information technology company Hewlett Packard Enterprise Co., said at an Oct. 28 analyst meeting.
Under Armour says it has narrowed its spring and summer 2022 order book. “We are taking precautions to navigate some of the volatility and anticipated business disruptions in the first half of 2022,” David Bergman, chief financial officer of Under Armour, said during an earnings call Tuesday.
Consumer-goods suppliers have trimmed product lines to simplify manufacturing and keep goods moving and are expanding their sources of raw materials. Larger industrial manufacturers are resetting assembly lines to make them more resistant to the sort of outages that have hit the automotive sector, where several companies say they now expect the semiconductor shortage to affect their production into 2022.
Ford Motor Co. is “designing for much more interchangeability, fungibility,” and ensuring it has multiple sources for components, said Hau Thai-Tang, its chief product platform and operations officer, during a Monday investor meeting.
Logistics experts say the interconnected nature of supply chains means there is no quick fix to resume the steady flow of goods through the global economy.
“We’ve been looking at no relief coming until the end of the 2022 calendar year,” said Sarah Banks, global lead for freight and logistics at consulting firm Accenture PLC. “But the continuing issues in supply chains raise the question of whether that is still possible. There are some positive signs, but it’s still a guess how long we will be in this situation.”
She said unwinding the supply-chain snarls will depend at least in part on addressing the impact of Covid-19 on the economy and on operations from factories to port docks.
“There are bigger economic questions that dictate supply and demand,” Ms. Banks said. “Only until it becomes clear how we live our lives with Covid will we know what it looks like for supply chains,” she said.
Lisa Ellram, a professor of supply chain management at the Miami University Farmer School of Business in Oxford, Ohio, said supply chain operations could be closer to normal by the fall of next year. But because of the continuing potential for shutdowns and other pandemic impacts, she said, “I do think Covid is the big wild card.”
Operators in supply chains say the congestion will remain until there are enough workers for trucking, port and warehouse operations.
“I won’t try to prognosticate when and how this ends, but I do believe that it’s going to extend for quite some time,” Bob Biesterfeld, chief executive officer of C.H. Robinson Worldwide Inc., the largest U.S. freight broker, said on the company’s third-quarter earnings call last week.
So Logic, from Metqverse and virtual world to retails Store
Chinese developer Kaisa suspends shares as liquidity problems spread
Wealth management products guaranteed by real estate group miss payment
Shares in Chinese property developer Kaisa Group Holdings were suspended in Hong Kong on Friday, a day after the struggling company added to the growing liquidity crisis in China’s real estate sector by saying wealth management products it guaranteed had missed payments.
The company on Thursday pointed to “unprecedented pressure on its liquidity” in comments that echoed the plight of fellow developer Evergrande, which in September roiled global markets by failing to make interest payments on its offshore debt.
Kaisa stated in a Hong Kong stock exchange filing on Friday that its shares had been suspended, as were those of several of its subsidiaries, without citing a reason. Its shares fell 15 per cent on Thursday, while its bonds maturing next year are trading at 30 cents on the dollar.
The group’s woes highlight the broadening of a crisis in China’s highly leveraged real estate developer sector, where companies have come under pressure from Beijing to reduce their debts but are now face worsening liquidity issues that have already led to several defaults.
Originally centred on the world’s most indebted developer Evergrande, which missed payments on offshore bonds in September only to narrowly avoid default before grace periods expired, weakness in the sector has spread to a host of other firms in recent months as property sales slow.
In October, several smaller developers, including Fantasia Holdings Group, Sinic Holdings Group and Modern Land (China), defaulted on their dollar-denominated debts. Borrowing costs on Asia’s high yield markets have soared this week, with average yields on Chinese issuers climbing above 25 per cent — the highest level since 2009 and compared to just 10 per cent in June.
Rising borrowing costs make it prohibitively expensive to refinance for developers as their debts come due. Kaisa, which became the first of the country’s developers to default offshore in 2015 and underwent a restructuring, is one of the sector’s largest borrowers on international markets and has over $3bn coming due in the next year, according to S&P.
Its issues with wealth management product guarantees follow retail investor protests at Evergrande’s headquarters in Shenzhen in September after similar delays on products that it guaranteed.
Last week, the rating agency downgraded Kaisa to CCC+ and said it viewed the developer’s capital structure as “unsustainable” because of “the company’s sizeable near-term debt maturities, weakening liquidity, and inadequate free cash flow through 2022”.
The company was quoted in the state-backed Securities Times as saying on Thursday it had been hit by downgrades from international rating agencies and a difficult environment for real estate. In the third quarter, China’s real estate industry contracted for the first time since the start of the pandemic.