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Wednesday, December 31, 2014, 09:07

Kaisa in hot water as sales are barred

By Zhou Mo in Shenzhen and Sophie He in Hong Kong

Several projects of Kaisa Group Holdings Ltd — a Shenzhen-based property developer listed in Hong Kong — have been banned from sale by mainland authorities for suspected irregularities.

Industry insiders say the ban is likely to spark concern among homebuyers and affect the company’s financial performance.

It’s not known at this stage when the ban will be lifted.

However, property investors can still put up deposits for Kaisa’s pre-sale projects although contracts cannot be signed as long as the ban remains in force, according to a salesman for one of the builder’s projects in Shenzhen’s Longgang district.

Kaisa said on Dec 28 its board vice-chairman and chief financial officer had resigned. It came after the company’s chairman submitted his resignation earlier this month.

“Kaisa has a long history of property development in Shenzhen. The company, with its products and services, has won general recognition from its customers. The big change in the company’s management may cause market panic and concern among property buyers,” said Li Yaozhi, general manager of Centaline Property in Shenzhen, which provides agent services for a number of Kaisa’s real estate projects.

Ratings services provider Standard & Poor’s (S&P’s) warned on Tuesday that Kaisa’s financing capability could be undermined and funding costs could increase if sales weaken. “The key to Kaisa’s performance in the next few months will be how well the new management team can work together under the current tough conditions,” said S&P’s credit analyst Dennis Lee.

“Over the next year, Kaisa’s sales and operations could be significantly affected,” Lee said.

Kwok Sze-chi, marketing director at Bright Smart Securities and Commodities Group Ltd, said there are too many uncertainties about Kaisa, especially when several members of its management team have left the company while its projects in Shenzhen are suspended or restricted by authorities.

“As a developer, if Kaisa is barred from selling apartments, it means it would have no income and only spending. This could be very dangerous,” Kwok said, urging Hong Kong investors to be more careful with the company.

He also warned that since Kaisa has outstanding debts, there could be default risks. As of June 30 this year, Kaisa had approximately 6 billion yuan ($967.3 million) in short-term debt and 9.4 billion yuan in unrestricted cash.

Shares of Kaisa have been suspended from trading in Hong Kong since Monday.

Last week, Haitong International Securities issued a research report, reiterating a “sell” rating for Kaisa, and further cut its target price from HK$2.01 to HK$1.7, saying its troubles in Shenzhen are causing uncertainties.

According to the report, it seems that Shenzhen authorities are not targeting any specific project, but rather the company’s operation in the city as a whole. The authorities have put all of the developer’s projects in Shenzhen on hold, while the city is the largest contributor to the firm’s overall profit.

More importantly, it says, there are no convincing explanations from the management for the exact cause of the company’s difficulties.

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