Kaisa Moves Closer to Default After Bondholders Reject Swap

(Bloomberg) -- Kaisa Group Holdings Ltd. failed to win bondholder approval for a debt swap, putting the Chinese developer on course for a default unless it can reach a last-minute agreement with creditors to delay payment.

The firm had sought to exchange its $400 million of dollar notes maturing Tuesday for new ones due 18 months later. The offer failed to meet the required 95% approval rate, according to a statement from the company. Kaisa shares tumbled almost 10% to a record low, while its dollar notes were little changed.

Kaisa, which became China’s first developer to default on dollar debt in 2015, now risks once again reneging on its obligations. The company is struggling to raise funds as surging borrowing costs shut it out of the primary dollar bond market and a housing slowdown squeezes revenue. Kaisa is the nation’s third-largest issuer of dollar notes among property firms, with some $11.6 billion outstanding.

Lazard Ltd., which is representing a group of Kaisa bondholders, met with the company on Wednesday to discuss alternative financing options put forward by the group last week, according to people familiar with the matter. The group has proposed a forbearance period of three weeks to three months on the note, the people said.

“To ease the current liquidity issue and reach an optimal solution for all stakeholders, the company is assessing and is closely monitoring the financial condition and cash position of the group,” a stock exchange filing from the firm said on Friday. “It will explore feasible solutions (including but not limited to renewal and extension of borrowings and disposing of assets).”

The company previously said it may not be able to repay bonds and could consider a debt restructuring if its exchange offer didn’t gain support. A failure to repay the principal on the notes at maturity would be considered a default, according to the bond’s offering circular. That would also risk triggering cross default on its other debt. 

Adding to investor jitters, another property developer warned it may fail to repay debt. China Aoyuan Group Ltd. said it’s not reached agreement with creditors, who are demanding payment for an aggregate $651.2 million. Aoyuan’s shares plunged 18% in Hong Kong on Friday, the most in four years. Its dollar notes were largely unchanged.

Kaisa Abandons Hong Kong Projects in Race to Avoid Default

Kaisa was co-founded by Kwok Ying Shing and his two brothers in 1999. The company started selling its first residential project the next year before gaining popularity by redeveloping distressed properties in Shenzhen.

Kaisa’s woes have wiped out much of the Kwoks’ fortune. With shares slumping in all of the group’s trading units, the family’s wealth has plunged 85% to about $200 million from $1.3 billion in January, according to the Bloomberg Billionaires Index. The developer’s Hong Kong-listed stock has tumbled 75% this year, one of the largest declines among its peers. 

Other real estate firms have been scrambling to avoid default by seeking to extend payment deadlines in recent weeks. Prohibitively high borrowing costs in the offshore credit market are making it near-impossible for many firms to refinance their dollar debt. A Yango Group Co. unit successfully swapped three dollar notes for bonds offering a personal guarantee by the firm’s chairman last month. 

Kaisa’s exchange plan failed to address the question of the firm’s broader debt obligations, particularly for its offshore notes which make up the vast majority of its public bonds. A default by the company is “inevitable” within six months, S&P Global Ratings predicted last month. Kaisa has said it may accelerate the disposal of real estate projects and high-quality assets to improve liquidity. 

The 30-day grace period for interest payments due last month on two dollar notes expires next week, while the firm has $2.8 billion in offshore notes maturing in 2022. That includes a $550 million bond due April. 

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