(Yicai Global) May 12 -- A unit of cash-strapped Chinese property developer Kaisa Group has failed to pay the first-quarter payment on a trust loan for a project it is building in China’s Liaoning province.

Kaisa East Daihe Real Estate Development was in material default on the loan made by a trust product of JIC Trust because of falling sales, increased difficulty raising funds, and greater liquidity pressures, which are mainly due to the economic situation and regulation, the lender told Yicai Global, citing the unit and the loan’s guarantor, Kaisa Group Shenzhen.

Hangzhou-based JIC Trust added that there is a risk that the loan cannot be repaid on schedule and that it may not be able to recover the principal.

JIC Trust has asked a court to freeze Kaisa East Daihe’s assets as it failed to pay interest of CNY13.4 million (USD2 million) on March 15, per a report the trust product’s investors received on April 26 and seen by Yicai Global.

Anquan No. 585, set up in December 2020, raised CNY449.7 million (USD66.8 million), which mainly went to finance Kaisa East Daihe’s Costal Town No. 1 project in Suizhong county in Liaoning. The trust product’s Class I and Class II funds had an expected maximum return on investment of 7.2 percent and 7.4 percent. Interest on the Class I fund is due every June 15 and that of the Class II fund on Dec. 15. The first-phase product falls due on June 30.

Sanhe Zhaolong Jiaye Real Estate Development, in which Kaisa holds a 70 percent stake through its unit Kaisa Real Estate Beijing, is the loan's joint payee and guarantor using a project in Hebei province's Yanjiao town as collateral.

Sales income from the Liaoning and Hebei projects, the guarantor’s operational cash flow, and the collateral’s disposal value are the trust product’s key sources of repayment, according to promotional and informational disclosure materials published by Anquan No. 585.

The trust product pledged the Liaoning project would be "open to sales in 2019" but construction work has stalled. Meanwhile, the Hebei project has not yet secured planning and construction licenses from the local authorities due to urban planning changes.

A number of JIC Trust products have entered a six-month extension period, according to some investors. In response, the trust company said it will take steps including extension talks, triggering guarantees, and litigation to urge borrowers to repay and protect investors’ rights and interests.

Editors: Zhang Yushuo, Futura Costaglione