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Explainer-China’s embattled developer Kaisa Group and the chairman behind it

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November 12, 2021

HONG KONG (Reuters) – After cash-strapped developer China Evergrande https://www.reuters.com/business/several-bondholders-china-evergrande-receive-overdue-bond-coupon-payments-media-2021-11-11 Group once again averted a destabilising default this week, investor focus is shifting to other Chinese developers with offshore payments coming due, especially Kaisa Group.

Kaisa has more than $59 million in interest payments due on Thursday and Friday, with 30-day grace periods for both. It was not immediately known if Kaisa, which has already missed https://www.reuters.com/business/chinese-developer-kaisa-plunges-poor-oct-sales-add-liquidity-worries-2021-11-04 payments on some wealth management products at home, has made the dollar-bond coupon payments.

Here are key facts about the developer and its founder:

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WHAT IS KAISA GROUP?

The company was founded by Kwok Ying Shing, now 57, in the southern Chinese city of Shenzhen in 1999.

In 2015, Kaisa became China’s first real estate company to default on an overseas bond. It bounced by 2017 and is now China’s No. 25 developer by sales, with projects in 51 cities across the country, focusing on the Greater Bay Area of Hong Kong, Macau and China’s Guangdong province.

Kaisa has the most offshore bonds – $10.9 billion at the end of June – of any Chinese developer after Evergrande.

Dubbed the “King of Urban Renewal” by Chinese media, Kaisa has some 200 urban renewal projects across China, generating over one-third of the group’s revenue, with 120 in home-base Shenzhen, where land is scarce and home prices among the highest in the country.

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In the first six months of the year, Kaisa’s contracted sales climbed 77% from the same period last year to 63.9 billion yuan ($9.99 billion). Borrowings grew 2% from the end of last year to 123.8 billion yuan and assets rose 3% to 319 billion yuan.

Kaisa shares, which have plunged more than 70% this year as the debt crisis among China’s developers has grown, were halted on Nov. 5. It has a market value of HK$7.09 billion ($1 billion).

WHO IS CHAIRMAN KWOK?

He was born in Chaozhou, some 300 km (180 miles) northeast of Hong Kong in Guangdong. Little is known about Kwok’s education or work history, but he amassed enough money to found Kaisa at the age of 35.

He and his two younger brothers worked in trading and industrial businesses before entering real estate, according to Chinese media. The younger of the brothers, Kwok Chun Wai, is chairman of Hong Kong brokerage Fulbright Financial Group.

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The Kaisa chairman and founder is strict with his staff but is reasonable, and he maintains high standards for himself, one former and two current employees told Reuters.

Kwok is an excellent swimmer, a former employee said. Kaisa has operated sports stadiums and bought the Shenzhen Football Club in 2016, hiring stars Clarence Seedorf from Netherlands and Sweden’s Sven-Goran Eriksson as head coach for a short period.

SHENZHEN AND HONG KONG

Kwok is believed to have good connections in Shenzhen thanks to his involvement in many urban renewal projects that other developers tend to avoid, despite high profit margins.

These projects require redevelopment expertise and entail long four- to 12-year conversion times and layers of government approvals that can mean political risks.

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After former senior Shenzhen official Jiang Zunyu was arrested for corruption in 2014, authorities blocked sales of most of Kaisa’s Shenzhen projects with little explanation, drying up its cashflow.

Courts froze the company’s assets nationwide at the request of its lenders, leading to default the next year.

In recent years Kwok has lived mostly in Hong Kong, where Kaisa is listed, said two people with knowledge of his whereabouts. He became more active in investing in the former British colony last year.

Kaisa paid more than $1 billion for four residential sites in the city. It bought a controlling 28% stake in newspaper Sing Tao News Corp for $48 million via Kwok’s daughter Kwok Hiu Ting, the vice chairwoman of property management unit Kaisa Prosperity.

WHAT ELSE DOES KAISA DO?

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With units listed in Hong Kong, Shenzhen and New York, Kaisa operates businesses from medical services and tech to tourism and marine transport, together contributing around 5% to the group’s revenues.

Kaisa Health Group focuses on dental prosthetics, healthcare and sports rehabilitation and has sales and service networks in more than 20 countries, including the United States and Germany, according to its website.

($1 = 7.7922 Hong Kong dollars)

($1 = 6.3947 Chinese yuan renminbi)

(Reporting by Clare Jim; Editing by William Mallard)

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Oil up on OPEC+ plan to meet ahead of schedule if Omicron dents demand

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December 3, 2021

By Sonali Paul

MELBOURNE (Reuters) – Oil prices climbed on Friday, extending gains after OPEC+ said it would review supply additions ahead of its next scheduled meeting if the Omicron variant hits demand, but prices were still on course for a sixth week of declines.

U.S. West Texas Intermediate (WTI) crude futures rose 27 cents, or 0.4%, to $66.77 a barrel at 0122 GMT, adding to a 1.4% gain on Thursday.

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Brent crude futures rose 12 cents, or 0.2%, to $69.79 a barrel, after climbing 1.2% in the previous session.

The Organization of the Petroleum Exporting Countries, Russia and allies, together called OPEC+, surprised the market on Thursday when it stuck to plans to add 400,000 barrels per day (bpd) supply in January.

However the producers left the door open to changing policy swiftly if demand suffered from measures to contain the spread of the Omicron coronavirus variant. They said they could meet again before their next scheduled meeting on Jan. 4, if needed.

That boosted prices with “traders reluctant to bet against the group eventually pausing its production increases,” ANZ Research analysts said in a note.

Wood Mackenzie analyst Ann-Louise Hittle said it made sense for OPEC+ to stick with their policy for now, given it was still unclear whether Omicron could resist existing vaccines.

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“The group’s members are in regular contact and are monitoring the market situation closely,” Hittle said in emailed comments.

“As a result, they can react swiftly when we start to get a better sense of the scale of the impact the Omicron variant of COVID-19 could have on the global economy and demand.”

The market has been roiled all week by the emergence of Omicron and speculation that it could spark new lockdowns, dent fuel demand and spur OPEC+ to put its output increases on hold.

Brent was poised to end the week down about 4%, while WTI was on track for a 2% drop on the week, both down for a sixth straight week.

(Reporting by Sonali Paul; editing by Richard Pullin)

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Didi Global to start work on delisting from New York, to pursue listing in Hong Kong

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December 3, 2021

(Corrects last paragraph to say Reuters reported last month on Didi preparing for relaunch of its apps, not this month)

SHANGHAI (Reuters) -Chinese ride-hailing giant Didi Global will delist from the New York stock exchange and pursue a listing in Hong Kong, it said on Friday, after it ran afoul of Chinese regulators by pushing ahead with its $4.4 billion U.S. IPO in July.

The company made the announcement first on its Twitter-like Weibo account.

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“Following careful research, the company will immediately start delisting on the New York stock exchange and start preparations for listing in Hong Kong,” it said.

It later said in a separate English language statement that its board had approved the move.

“The company will organize a shareholders meeting to vote on the above matter at an appropriate time in the future, following necessary procedures,” it said.

Reuters reported last week citing sources that Chinese regulators had pressed Didi’s top executives to devise a plan to delist from the New York Stock Exchange due to concerns about data security.

The company pressed ahead with its New York listing despite a regulator urging it to put it on hold while a cybersecurity review of its data practices was conducted, sources have told Reuters.

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Didi is also preparing to relaunch its apps in the country by the end of the year in anticipation that Beijing’s cybersecurity investigation into the company would be wrapped up by then, Reuters reported last month.

(Reporting by Brenda Goh; Editing by Himani Sarkar and Edwina Gibbs)

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Exclusive-Toyota turns to Chinese tech to reach its electric holy grail

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December 3, 2021

By Norihiko Shirouzu

BEIJING (Reuters) – Toyota Motor Corp will launch an all-electric small sedan in China late next year, having turned to local partner BYD for key technology to finally make an affordable yet roomy runaround, four sources told Reuters.

Two of the four people with knowledge of the matter described the car as an electric holy grail for Toyota which has struggled for years to come up with a small EV that is both competitive on cost in China and doesn’t compromise on comfort.

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The sources said the breakthrough was chiefly down to BYD’s less bulky lithium-iron-phosphate (LFP) Blade batteries and its lower-cost engineering know-how – a turning of the tables for a Chinese company whose popular F3 saloon was inspired by Toyota’s Corolla back in 2005.

Little known outside China at the time, BYD, or “Build Your Dreams”, hit the headlines in 2008 when Warren Buffett bought a 10% stake and it has since become one of the biggest manufacturers of so-called new energy vehicles in the world.

Toyota’s new EV will be slightly bigger than its compact Corolla, the world’s best-selling car of all time. One source said think of it as “a Corolla with bigger back-seat section”.

It will be unveiled as a concept car at the Beijing auto show in April and will then most likely be launched as the second model in Toyota’s new bZ series of all-electric cars, even though it will only be on sale in China for now.

“The car was enabled by BYD battery technology,” one of the sources told Reuters. “It has more or less helped us resolve challenges we had faced in coming up with an affordable small electric sedan with a roomy interior.”

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It will be pitched below premium EVs such as Tesla’s Model Y or the Nio ES6 but above the ultra-cheap Hong Guang Mini EV, which starts at just $4,500 and is now China’s best-selling electric vehicle.

Two of the four sources, all of whom declined to be named because they are not authorised to speak to the media, said the new Toyota would be priced competitively.

One said it would likely sell for under 200,000 yuan ($30,000), aiming for a segment of the Chinese market Tesla is expected to target with a small car within the next two years.

“We don’t comment on future products,” a Toyota spokesperson said. “Toyota considers battery electric vehicles as one path to help us get to carbon neutrality and is engaged in the development of all types of electrified vehicle solutions.”

A BYD spokesperson declined to comment.

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‘ALL KINDA FLOORED’

The fact Toyota has been compelled to turn to BYD to solve its low-cost EV conundrum shows how far the competitive balance of the global auto industry has tipped in the past decade.

When the quality of Chinese vehicles was considered below par, global automakers were not too concerned that they couldn’t compete on price and left Chinese companies to control the domestic market for cheap, no-frills cars.

But times have changed.

Toyota executives started to worry back in 2015 when BYD launched its Tang plug-in hybrid, with significant improvements in styling, quality and performance. Most worrying was that fact it was still about 30% cheaper than comparable Toyota models.

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There was a critical turn of events in 2017 when Toyota’s top engineering leaders, including then-executive vice president Shigeki Terashi, drove several BYD cars such as the Tang at its proving ground in Toyota City near its headquarters in Japan.

Terashi subsequently visited BYD’s headquarters in Shenzhen and drove a prototype of its Han electric car.

“Their long-term quality is still a question mark, but the design and quality of these cars showed levels of maturity, yet they were much cheaper than comparable Toyota models,” said one of the four sources, who participated in the test drives.

“We were all kinda floored by that.”

Two of the sources said the BYD evaluations pushed Toyota to create its research and development (R&D) joint venture with BYD last year. Toyota now has two dozen engineers in Shenzhen working side-by-side with about 100 BYD counterparts.

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BLADE WINNER

Toyota’s new EV comes at a time it is under fire from environmental groups that maintain it is not committed to zero emissions. They say Toyota is more interested in prolonging the commercial usefulness of its successful hybrid technology.

Toyota executives say they’re not against battery electric vehicles (BEVs) but argue that until renewable energy becomes more widely available, they won’t be a silver bullet for slashing carbon emissions.

Nevertheless, Toyota has set up division in Japan dedicated to zero-emissions cars called ZEV Factory and it is developing safer and lower-cost battery technologies, including solid-state lithium-ion cells which would significantly boost an EV’s range.

While Toyota has long advocated a runaround that doesn’t compromise on comfort as the best way to popularise BEVs, it has struggled to produce such a car.

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One problem stems from need to stack bulky, heavy batteries under the floor, as they eat up the interior unless the roof is raised too – which is why many smaller EVs are SUVs.

In 2018, Toyota briefly explored the idea of a battery venture with BYD. That and subsequent interactions led Toyota’s engineers to come across BYD’s LFP Blade battery. They described it as a game-changer as it was both cheaper and freed up space.

“It’s a ‘scales fell from my eyes’ kind of technology we initially dismissed because its design is so radically simple,” one of the four sources said.

BYD officially launched its Blade battery in 2020.

LFP batteries have a lower energy density than most other lithium-ion cells but are cheaper, have a longer shelf-life, are less prone to overheating and don’t use cobalt or nickel. Tesla already uses LFP batteries in its Model 3 and Model Y in China.

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One of the sources said a typical Blade pack is about 10 cm (3.9 inches) thick when the modules are laid flat on the floor, roughly 5 cm to 10 cm thinner than other lithium-ion packs.

A BYD spokesperson said that was possible, depending on how an automaker packages the Blade pack in a car.

CUTTING CORNERS?

While Toyota has not fully solved the puzzle as to how BYD keeps coming in low on costs, two of the sources said one factor may be its abbreviated and flexible design and quality assurance process – which some Toyota engineers see as cutting corners.

Toyota’s planning process is much more rigid and thorough, the sources said. Once it has decided on the technologies, components and systems at the outset of a car’s three-to-four-year development process, it rarely changes designs.

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During the process, Toyota typically does three design prototypes and three manufacturing prototypes. Some are driven about 150,000 km (93,000 miles) to bullet-proof quality and reliability when testing for emissions or bad-road durability.

At BYD, engineers do far less prototyping – there are typically just two – and designs can be changed as late as two years into the process, which is a definite no-no at Toyota, one source said. A BYD spokesperson declined to comment.

But as a result of those last-minute changes, the technology in a BYD car is much more up to date than in a Toyota when it hits the market, and is often cheaper.

The four sources believe that further advances in simulation and virtual engineering know-how, as well as the fact that BYD produces a wide array of its own components, have helped it close potential gaps in quality and reliability that could stem from such last-minute design changes.

“Our challenge at Toyota is whether we dismiss BYD’s way of engineering as being loosey-goosey and too risky, or whether we can learn from it,” one of the sources said.

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($1 = 6.3703 Chinese yuan renminbi)

(Editing by David Clarke)

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