Kaisa Bonds Jump as Onshore Restructuring Raises Creditor Hopes

  • Company says sales of some projects have been reopened
  • Kaisa was first Chinese builder to default on dollar bonds

Kaisa Group Holdings Ltd.’s dollar bonds headed for their best rally in six months on speculation a restructuring agreement with an onshore lender will allow the beleaguered Chinese developer to focus on resolving a stalemate with offshore creditors.

The Shenzen-based real estate group’s Shanghai unit has returned to normal operations after reaching a settlement with Bank of China Ltd., spokeswoman Zhou Ting said in an e-mail Tuesday, declining to elaborate on the amount of debt involved. The Securities Daily reported earlier that a restructuring agreement had been reached with the Beijing-based lender.

Kaisa’s $800 million of 8.875 percent 2018 notes jumped 2.68 cents to 55.12 cents on the dollar as of 3:38 p.m. in Hong Kong, according to Bloomberg-compiled prices. After a 3.66 cent gain Monday, the securities are set for their best two-day advance since April. The company’s $500 million of 10.25 percent 2020 notes also rose for a second day to 55.33 cents. Both bonds are trading at their highest levels since August.

“The extension of onshore facilities means that Kaisa has consolidated its banking relationship and is getting ready to resume operations,” said Henry Ng, a credit desk analyst at Citic Securities International Co. in Hong Kong. “The opportunity cost of a restructuring failure looks higher. Offshore bondholders may be able to leverage on that to get a better deal.”


Positive Sign

Sales of projects including units at Kaisa City Plaza reopened on Oct. 4, while villas and apartments at Shanghai Kaisa Mansion No. 8 will be delivered to buyers soon, Zhou said today. The builder’s projects in Wuhan have also resumed construction and sales, the Securities Daily reported earlier Tuesday.

A Beijing-based spokesperson at Bank of China couldn’t immediately comment.

Kaisa became the first Chinese developer to default on its dollar-denominated debt when it failed to pay the coupon on two notes. The builder has been negotiating with lenders to resolve sales that have been blocked at some of its developments to ease cash flows. It has also been in talks with offshore creditors since Sept. 21 to achieve a consensual debt restructuring, it said in an Oct. 2 stock exchange filing.

Chairman and founder Kwok Ying Shing took back control of the company after Sunac China Holdings Ltd. dropped its takeover plan in May upon finding Kaisa’s net asset value was zero. Kaisa’s stock has been suspended from trade in Hong Kong since March 31, as the firm sought more time to publish its 2014 financial accounts.

Given the restructuring progress onshore, any offer from Kaisa to offshore creditors has the potential of exceeding the 73 cents on the dollar recovery rate that had been proposed to them by Sunac, Citic’s Ng said.

“The fact that Kaisa has made progress with onshore creditors and is slowly resuming sales is a positive sign for offshore holders,” said Charles Macgregor, the head of Asia high-yield research in Singapore at Lucror Analytics Pte. “Ultimately, the company would like to maintain good access to capital markets and we would hope this would translate into a reasonable outcome for offshore bondholders.”

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