Kaisa Group Holdings Ltd (KAISF), a developer listed in Hong Kong whose assets are concentrated in the southern city of Shenzhen, is expected to default on an international bond issue Thursday after failing to service a loan from HSBC last week.

While the size of the issue concerned is small, at $26 million, it would be the first time that a developer active on the mainland has defaulted on international investors

Analysts say it threatens to expose the risks of investing through the arcanely complex offshore structures used by Chinese companies, and to be a tough examination for the country’s largely untested new bankruptcy regime.

Some fear the default could be the first of many in a highly-indebted sector that has been caught out badly by the end of what once seemed an unstoppable boom.

Prices for housing are falling in nearly all of China’s 70 largest cities, according to official statistics, after years of unrestrained building.

Figures from Dealogic, quoted by the Wall Street Journal, indicate that Chinese developers have borrowed around $55 billion through offshore bond markets.

Kaisa Wednesday denied a report that its board had decided to file for bankruptcy and liquidation, but its situation has appeared to deteriorate rapidly in recent weeks.

Chairman Kwok Ying Shing and four other directors have left the board since December. The local government of Shenzhen has also blocked Kaisa from selling units in any of its three main projects and restricted the sale of others, while two of its business partners have also demanded immediate repayment of nearly $200 million after the default on the HSBC loan.

Kwok, who was reportedly detained in October by mainland authorities, has now disappeared, according to the South China Morning Post.

Charles Macgregor, head of Asian credit research at Lucror Analytics in Singapore, notes that all this has happened despite the company’s accounts showing a pretty decent cash reserve of over $1.5 billion as of the end of June. That begs the question of where the money has gone in the meantime.

Foreign bondholders trying to get their hands on any of it are going to need all the help they can get. They’ll have to sue in the Cayman Islands, where the vehicle that issued the bonds is registered (as is nearly always the case for the $55 billion in Chinese developers’ high-yield bonds). The Cayman court would have to apply for access to the assets of the Hong Kong-listed company.

“Thereafter, the challenges escalate exponentially,” Macgregor warns, saying that a Hong Kong receiver “would face an uphill battle in a mainland court that is likely to be “more inclined to protect the right of mainland creditors and employees.”