- Support for restructuring plan up from over 58% last month
- Developer's 2018 dollar bonds jump most since January
Kaisa Group Holdings Ltd., which last year became the first Chinese developer to default on dollar bonds, took a step closer to restructuring its offshore debt by sweetening its offer following talks with creditors.
The builder said in an exchange filing late Thursday that investors owning more than 80 percent of offshore claims, which total about the equivalent of $2.6 billion, agreed to support its restructuring plan following “substantive negotiations” with a group of creditors led by Farallon Capital Management LLC and BFAM Partners. Support has risen from the more than 58 percent it had on Feb. 17, according to Kaisa, which is based in the southern city of Shenzhen.
Kaisa sweetened its restructuring terms, which it had first proposed on Jan. 10, by offering to increase the coupon rates on the new bonds to be issued as replacement to existing notes. It also provided several options to receive future cash incentives which are triggered under different level of market capitalization, and doubled the consent fee to 1 percent for creditors who accept the new terms by March 23.
“This is a positive development as it concludes protracted restructuring discussions and unlocks value inherent in Kaisa’s bonds,” said Mihir Chandra, Hong Kong-based head of research for Asia at SC Lowy, an independent fixed-income trading firm. “We believe Kaisa’s credit spreads will tighten towards those of comparable B rated issuers once the restructuring is consummated and they start paying coupons again.”
Kaisa’s 8.875 percent dollar notes due in 2018, on which it defaulted in April last year, rose 1.5 cents on the dollar, the biggest increase since Jan. 28, to 78.2 cents to yield 20.2 percent as of 4 p.m. in Hong Kong, according to Bloomberg-compiled prices. The spread over Treasuries narrowed to 1094 basis points from 2047. Chinese junk bonds rated at B offer 730 basis points on average, according to a Bank of America Merrill Lynch index.
San Francisco-based Farallon and BFAM, which earlier held out for better terms and submitted a competing restructuring proposal, said they “are pleased to have come to a consensual resolution with Kaisa which has achieved a significant improvement for all bondholders,” according to an e-mail statement on their behalf by Newgate Communications LLP.
Kaisa will next seek approvals from courts in Hong Kong and Cayman Islands on or before March 29 to convene meetings of creditors to implement the debt workout, which requires at least a 75 percent majority consent.
“The deal risk is minimal” with the support from the opposing consortium, Tony Chen, a credit analyst in Hong Kong at Nomura Holdings Inc. wrote in a note to clients Friday.