China’s Kaisa Tries to Avoid Default With Bondholder Offer
(Bloomberg) -- Kaisa Group Holdings Ltd. is asking creditors to swap at least $380 million of its bonds, the latest step by a Chinese developer to avert a default during the industry’s cash crunch.
The builder has offered to exchange at least 95% of its $400 million 6.5% note maturing Dec. 7 for new notes with the same coupon maturing June 2023. If the offer to bondholders fails, the developer may not be able to repay bonds and could consider a debt restructuring, it said in a stock exchange filing on Thursday.
Kaisa’s bonds fell, while its shares jumped as the stock resumed trading following a three-week halt. In a potential boost to its cash stockpiles, the firm agreed to sell its stake in a land site in Hong Kong, a separate statement showed.
Shenzhen-based Kaisa is the latest real estate firm trying to shore up its finances as the debt crisis originally centered on China Evergrande Group engulfs the industry. The liquidity squeeze follows a government campaign to reduce leverage in the sector, and has been made worse by a slump in home sales and prices.
See details on the bond exchange offer here
“Despite our efforts to reduce our interest-bearing debt in response to government regulations, the current sharp downturn in the financing environment has limited our funding sources to address the upcoming maturities,” Kaisa said in the statement.
Kaisa, which in 2015 became China’s first developer to default on dollar notes, has since become the sector’s third-largest issuer of such bonds, with more than $11 billion outstanding. A failed extension and outright default could pose a significant risk for global investors who are diving back into offshore property bonds on bets that the worst of the recent market rout may be over.
Kaisa’s 2021 note dropped 3.5 cents on the dollar to 47 cents as of 4:14 p.m in Hong Kong on Thursday, on track for the biggest decline since Nov. 9, according to Bloomberg-compiled prices. Its stock jumped 14%.
The bond proposal includes an additional cash offer of $25 for every $1,000 of the principal amount exchanged. Still, it could be tough to get across the line with a minimum acceptance of 95%, Bloomberg Intelligence analyst Daniel Fan wrote in a note.
On top of that, Kaisa will still have to deal with another $2.8 billion in dollar bonds coming due next year, including a $550 million note in April. A set of Kaisa’s offshore bondholders has hired advisers, according to people with knowledge of the situation.
The statement came hours after Kaisa announced plans to resume trading of its stock, repay overdue wealth management products and speed up the disposal of real estate projects and “high-quality assets.”
Kaisa’s shares were halted on Nov. 5 pending an announcement containing inside information. The company has put 18 projects in Shenzhen up for sale, with a total value estimated at 81.8 billion yuan ($12.8 billion), Bloomberg reported at the time.
Kaisa will sell a residential site in Hong Kong’s Kai Tak area to a joint venture between Far East Consortium International Ltd. and New World Development Co., a statement showed Thursday. Kaisa bought a 50% stake in the site in November last year for 3.2 billion yuan ($500 million), according to the company’s annual report.
The price of the land in the transaction is HK$7.9 billion ($1 billion), and the buyers will take on loans totaling about HK$4.3 billion that come with the plot. On that basis, the sellers should get around HK$3.7 billion in cash, with Kaisa to receive half of that amount, about HK$1.8 billion, according to Philip Tse, head of Hong Kong and China property research at Bocom International Co.
The property was valued at HK$9.8 billion as of mid-2021, Far East Consortium said.
Like Evergrande, Kaisa is struggling to pay back overdue wealth management products sold to individuals. The company has guaranteed such products, which have 12.8 billion yuan outstanding in principal and interest, local media reported earlier this month.
About 1.5 billion yuan in wealth products tied to the Kaisa group and its associates became due in October and November, the company said in the statement Wednesday. Kaisa is implementing measures to pay back about 1.1 billion yuan of the wealth products, it said. These include paying 10% of the principal on the month that they come due, and a further 10% every three months thereafter.
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