Clare Jim and Julie Zhu

HONG KONG (Reuters). Chinese property giant Kaisa Group Holdings Ltd, under intense pressure from authorities is trying to find a way to repay wealthy product investors. According to two people with direct knowledge, this was done.

Kwok Yiing Shing is the chairman of this cash-strapped developer. He has been asked by Shenzhen’s government to submit a proposal for investors to be repaid in the wealth management products (WMPs) it offers.

Sources said that the Shenzhen government could seize Kaisa assets, and take over gradually the company if Kaisa fails to comply.

Kaisa’s problem highlights how authorities push property developers to prioritize meeting their onshore debt obligations. It could increase the financial market pressure for a sector that has been hit hard by regulatory-induced liquidity shortages, including those experienced by many developers who have failed to make offshore bond payments.

Kaisa has begun restructuring $12 Billion in offshore debt after it defaulted in a bond of $400 MILLION dollars last month. It is now the largest offshore debt company in the sector, surpassing China Evergrande Group.

As of June, it had disclosed 123.8 billion yuan (roughly $19.4 billion) in debt obligations. However, it wasn’t immediately clear if Kaisa WMP obligations have been included in this total.

WMPs are one of the most sensitive issues authorities have to deal with, despite its obligations onshore. One source claims that many of WMP products sold by the company were purchased from relatives of Chinese officials.

Kaisa confirmed that it failed to pay WMPs payments in November. It told investors there was a total of 12.79 billion Yuan ($2 Billion) in principal, interest and other outstanding amounts at the time.

Kwok, aged 57, also stated that he was concerned about his own safety in the face of the increased pressure from authorities. The sources declined to name the source due to confidentiality.

Since a long time, he’s been living in Hong Kong. Tycoons in China have been detained frequently after they have run into trouble with the authorities.

Kaisa did not comment, and Kwok was not made available for comment. An inquiry to Shenzhen’s government was unsuccessful.

According to sources, Kwok has been actively engaged with offshore bondholders of property developers in an effort to obtain fresh loans from them to pay back WMP investors.

According to Reuters, a Kaisa bondholder group that holds offshore Kaisa notes worth $5.5 billion has suggested options, including extending new debt of $2 billion to the developer.

WMP investors stormed Kaisa’s Shenzhen finance office in November. Kaisa stated that it was speeding up the sale of assets to raise funds.

Kaisa plans to sell 18 assets in Shenzhen before the end 2022 – mainly commercial and retail properties. Sources tell Reuters that these are valued at a total of 81.8 billion yuan.

Evergrande, Kaisa and other Chinese property businesses in debt have dominated financial markets. Investors fear that the sector’s problems could cause severe economic damage to China. Beijing repeatedly assured investors that the problems in this sector could be fixed.

Evergrande is the center of the current debt crisis. It is currently struggling to pay more than $300 billion of liabilities. In a meeting this weekend with bondholders, Evergrande requested a delay of six months for redemption and coupon payment of an offshore bond.

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