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China developer Kaisa asks for more time in liquidity crunch

China’s property developer Kaisa Group Holdings said that it has been hit by the sector’s liquidity crunch and needs help to pay its investors, workers and suppliers.

Trading in shares of Kaisa – which is seeking a buyer for some of its assets to raise cash – and three of its units was suspended last week, a day after an affiliate missed a payment to onshore investors.

The squeeze on the Chinese real estate industry has been exacerbated by the troubles of China Evergrande Group, the world's most indebted developer, which has triggered offshore defaults, credit rating downgrades and sell-offs in some developers' shares and bonds over recent weeks.

This has now been reflected in a downgrade for Kaisa from the credit rating agency Fitch, which cited the group’s deteriorating liquidity situation. The developer says that it is attempting to solve its liquidity problems and is consulting investors in wealth management products about better payment solutions but needs a temporary reprieve.

"We sincerely ask investors to give Kaisa Group more time and patience," it said in a statement on its official WeChat account late on Monday.

Wider contagion

Kaisa is also reported to have met with a Chinese government think-tank, banks and property firms, in a bid to resolve its problems. Group representatives also attended a meeting with the Development Research Centre of the State Council, other developers and lenders in the southern Chinese city of Shenzhen, where Kaisa is based.

The think-tank advocates policy proposals on China's national development and its economy but is not a decision-making body. According to reports other participants at the meeting included real estate company China Vanke, Ping An Bank, China Citic Bank, China Construction Bank, CR Trust, Southern Asset Management and developer Excellence Group.

At the meeting, Kaisa’s representatives apparently urged state companies to help private firms improve liquidity through project acquisitions and strategic purchases. They admitted that the group faces significant difficulties exacerbated by rating downgrades and banks curbing loans, the source said.

They revealed that some financial institutions had transferred funds from Kaisa’s accounts inappropriately and asked that all lawsuits seeking a freeze of its assets be handled centrally in a Shenzhen court.

The problems of China's property sector have rattled global markets and encouraged Beijing officials to speak out in a bid to reassure investors the crisis will not spiral out of control.  Evergrande is challenged by liabilities of more than $300 billion, which, if not managed, threaten systemic risks to China's financial system. After Evergrande, Kaisa has the biggest offshore debt of any Chinese developer.

Reflecting global concern on the situation, the US Federal Reserve said in its latest report on financial stability that stresses in China's real estate sector, caused in part by regulatory focus on leveraged institutions, as well as a sharp tightening of global financial conditions could pose some risks to the US financial system.

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