By Fiona Law

A default by a Chinese property developer on its offshore bonds could be a test case for foreign investors seeking to recoup losses from troubled companies in China.

Kaisa Group Holdings Ltd. said late Monday it has missed $23 million in interest payments that it was due to pay last Thursday. Adding to Kaisa's troubles, at least 15 Chinese financial companies have asked a court to freeze the firm's assets, hurting the developer's ability to sell off projects to raise funds and pay back lenders.

More than two dozen foreign fund companies, ranging from BlackRock Inc. to Fidelity Investments and Lion Global Investors, owned Kaisa debt in recent months, according to Thomson Reuters, although it isn't clear how many currently hold the debt. BlackRock and Fidelity have declined to comment, while a spokesperson for Lion Global, a Singapore-based fund company, said it has sold its holdings.

China has issued a record amount of corporate debt in recent years, and international money managers have gobbled up the securities, attracted by China's rapid economic growth and the substantial returns on offer. Yet investors have become increasingly cautious as economic growth slows.

Kaisa's troubles are particularly worrying for offshore investors, who have little protection when companies on the mainland go bust. They get paid long after domestic investors and have no direct access to assets on the mainland because of capital restrictions.

"If the company has defaulted on its offshore bonds and winds down, the entire credit market is interested in how this is processed, the length of time and how much of its assets foreign investors would ultimately get," said Jim Veneau, head of fixed income for Asia at AXA Investment Management, which has $716 billion in assets.

There have been few previous defaults, but one example was in 2013, when China's Suntech Power Holdings Co., once a giant in solar power, defaulted on its overseas debt. U.S. bondholders are still fighting to get cash back, though most expect to recoup little. The company's creditors in China were paid 30 cents on the dollar after Suntech restructured itself.

Kaisa's troubles started late last year, when the Shenzhen government blocked approvals of some of its developments and property sales in the city--actions the company said in a Dec. 21 statement could have "an adverse impact on cash flow." Several executives have left the company, including Kaisa's founder and longtime chairman, Kwok Ying Shing. Neither the government nor Kaisa executives have offered explanations. On Jan. 1, Kaisa said it defaulted on a $51.6 million loan from HSBC Holdings PLC.

Late Monday, it said the bank had granted it a waiver on Jan. 7, meaning Kaisa doesn't have to repay the loan for now.

Analysts and investors don't expect Kaisa to be liquidated. Until a few months ago, the company had strong sales and solid cash flow. Even if it is liquidated, the company has plenty of physical assets it can sell to raise cash, though it is unclear how much would go to international investors.

"How will the onshore Chinese liquidators and courts understand and handle offshore creditors' demand? These remain to be watched," said Ivan Chung, a senior vice president at Moody's Investors Service. "We will see how big the gap is between foreign investors and domestic creditors."

He added that onshore creditors, including banks and trust-loan providers, have collateral on their loans to Kaisa and could have better access to the company's assets than offshore investors.

Onshore creditors appeared to have accelerated their actions to preserve assets of the company.

"As of Jan. 9, several bank accounts of the group were frozen and under investigation by several banks," Kaisa said Monday. The balances affected totaled roughly 713 million yuan ($115 million), it said, without elaborating.

The company also said that as of Friday, various creditors have asked courts to help ensure its assets aren't drained away, and that it has received a court order requiring it to preserve assets worth 651 million yuan.

Kaisa said Monday that it is looking to appoint a financial adviser to help the company to reach a solution, "taking into consideration the interests of all stakeholders, including the company's onshore and offshore creditors."

According to filings to the Intermediate People's Court in Shenzhen, 10 banks, four trust firms and one wealth-management company have asked the court to freeze the assets of Kaisa's units and its local partners in cities including Shenzhen, Zhuhai and Dalian.

Kaisa has a 30-day grace period on the interest payments it missed Thursday.

Kaisa's troubles have shaken confidence among foreign bondholders, sending the company's offshore bond prices tumbling 80% over the past month to around 30 cents on the dollar, and sending yields to 48%-79%. Bond prices move inversely to yields. Onshore, Kaisa's trust loans yield from 8%-9.2%, according to data provider Wind Info.

Trading in Kaisa's stock has been halted since Dec. 29. The suspension will continue, Kaisa said Monday.

More broadly, the cost of issuing dollar bonds for below-investment-grade Asian companies has surged to 7.8%--the highest level in 16 months--from as low as 6.9% in August, while the cost for Chinese firms, investment grade or below, has jumped to 5.5%, the highest level since May last year, from 5.3% in early December, according to J.P. Morgan Asia Credit Indexes.

Wayne Ma, Esther Fung and Yang Jie contributed to this article.

Write to Fiona Law at fiona.law@wsj.com

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