Shenzhen Said to Seek Investors to Buy Kaisa Stakes

The Shenzhen government is holding talks with several property developers in a bid to orchestrate investments in Kaisa Group Holdings Ltd., people familiar with the matter said today.

The government doesn’t want stakes to be sold at a discount, one of the people said, asking not to be identified because the discussions are private.

Kaisa, a developer based in the southern Chinese city of Shenzhen, is being probed over alleged links to Jiang Zunyu, the former security chief of Shenzhen who was taken into custody in a graft probe, two other people familiar said on Jan. 13. It also failed to make a $23 million coupon payment, due Jan. 8, on its $500 million of 2020 dollar bonds, putting it at risk of becoming the first real estate company in China of defaulting on its U.S. currency debt.

An official from Shenzhen city government’s press office said they don’t have information regarding this matter. An officer from Kaisa’s public relation department declined to comment when reached by telephone today.

Kaisa’s 2020 notes jumped 8.9 cents, the most on record, to 44.3 cents on the dollar, the highest since Dec. 31, as of 6:24 p.m. in Hong Kong, Bloomberg-compiled prices show. The securities, sold to investors at par, or 100 cents on the dollar in January 2013, tumbled to 29.9 cents on Jan. 7.

‘Potential White Knight’

“If this news turns out to be true, it could be a potential white knight scenario,” Yin Chin Cheong, a Singapore-based credit analyst at independent research firm CreditSights Inc., said. “But it could also be a path to start the restructuring of Kaisa’s onshore and offshore debt.”

Several of Kaisa’s projects in Shenzhen were blocked last month and key executives, including its chairman, Kwok Ying Shing, quit.

Just about every one of Kaisa’s property projects has a company incorporated in China that is associated with it, a sale document for one of its U.S. dollar bonds shows. Kaisa, incorporated in the British Virgin Islands, controls them via Rui Jing Investment Co., which has indirect or direct control of about 240 subsidiaries, all incorporated onshore, the prospectus shows.

Kaisa’s offshore parent company, Kaisa Group Holdings Ltd., is 49.25 percent owned by Good Health Investments Ltd., according to data compiled by Bloomberg. Good Health Investments is controlled by the Kwok family, according to the prospectus.

Adviser Talks

The other main shareholder of the Hong Kong-listed parent is Sino Life Insurance Co. and its unit Fund Resources Investment Holding Co. Combined, they own 29.94 percent. The duo increased their stake to the current level in early December, buying an 11.21 percent interest from Kwok for HK$1.67 billion ($215 million), according to a Dec. 4 stock exchange filing. The remaining about 20.8 percent is held by minority offshore shareholders.

The 2020 notes’ covenants require that before an event of default can be formally called, bondholders holding 25 percent of the dollar debentures must instruct the bonds’ trustee to declare it so. Noteholders can also form an ad hoc committee, hire advisers and/or declare a debt moratorium to negotiate a repayment. Kaisa has a 30-day grace period to make its coupon payment.

Moelis & Co. is in talks with several Kaisa noteholders, the investment bank said in a Jan. 14 e-mail, while law firm Kirkland & Ellis LLP is representing holders of its convertible debentures, people familiar said. Kaisa has hired Sidley Austin LLP to advise on debt restructuring, other people said.

A number of claims onshore have already been made over Kaisa’s assets.

Dalian Intermediate People’s Court, in China’s northeast Liaoning province, froze 540 million yuan ($87 million) of deposits on Jan. 12 as part of lawsuit filed by Industrial & Commercial Bank of China Ltd., other people familiar said Jan. 19. The same court ordered 100 million yuan be stopped on Jan. 9 as part of law suit brought by China Everbright Bank Co., those people said.

Investors in a 2.5 billion yuan Kaisa trust due on Jan. 21 will be repaid their principal plus interest because the product will be transfered by its trustee to a third party that will assume the obligations, two people familiar with the matter said on Jan. 20.

— With assistance by Steven Yang, and Christopher Langner

Before it's here, it's on the Bloomberg Terminal.