Kaisa Shares Surge Most on Record After Sunac Buyout Offer

Kaisa Group Holdings Ltd. surged the most on record in Hong Kong trading after Sunac China Holdings Ltd. offered to buy out the troubled Chinese developer.

The shares jumped 18 percent to close at HK$1.87, above Sunac’s offer price of HK$1.80, as they resumed trading for the first time since Dec. 29.

Sunac, which bought a 49.3 percent stake in Kaisa on Jan. 30, is seeking to buy the shares it doesn’t already own at a 13 percent premium to the last traded price, the companies said in a joint statement on Feb. 6. The deal helped Kaisa avoid a bond default while letting Sunac expand to southern Chinese cities such as Shenzhen, Kaisa’s hometown.

“The change in the largest shareholder will help Kaisa ease its financial pressure and solve problems related to the authorities’ anti-corruption investigation in Shenzhen,” analysts led by Hugo Hou at Haitong Securities Co. wrote in a report on Monday. They upgraded Kaisa’s rating to buy from sell.

The Shenzhen government had been seeking investors for Kaisa, which is linked to an investigation into a former city official, people familiar with the matter said last month. Kaisa’s fortunes started unraveling in December when the government blocked some of its apartment sales in Shenzhen, the city that shares a border with Hong Kong.

Sunac Gains

Sunac shareholders are also supporting the acquisition. Shares of the Tianjin-based company rose 3.6 percent, the most since Jan. 21, to HK$7.19 as they resumed trading following the offer announcement.

The acquisition is a “bargain purchase,” China International Capital Corp. analysts led by Eric Zhang said in a note on Monday. “Kaisa could help sustain Sunac’s high sales growth” with 34 million square meters (366 million square feet) of land inventory across 30 cities, they said.

Sino Life Insurance Co., the second-largest shareholder of Kaisa, will keep its 29.9 percent equity stake, according to the joint statement. The deal is conditional on Kaisa obtaining debt waivers, settling court applications, and resolving “irregularities” in its business, the companies said in the statement.

While Kaisa managed to pay a missed interest payment of $23 million on dollar denominated bonds due Feb. 8, the company is still facing repayment demands. It received notices from creditors, including project partners and suppliers, seeking about 28 billion yuan ($4.5 billion) as of Jan. 31, Kaisa said in a separate statement on Monday.

The company doesn’t agree with the creditors and it’s seeking legal advice, Kaisa said. It’s not aware of further property projects blocked by authorities and will continue to try to remove the restrictions, it said.

Bond Declines

Sunac Chairman Sun Hongbin said in a Feb. 4 interview that he didn’t know whether restrictions on Kaisa’s blocked projects will be lifted. They are Kaisa’s best assets with gross margins of 50 percent to 60 percent, according to Citigroup Inc.

Kaisa’s 2020 dollar-denominated bonds pared declines to 74.5 cents on the dollar as of 4:32 p.m. in Hong Kong, according to Bloomberg-compiled prices. That’s up from the day’s low of 73.6 cents. The company’s $800 million of 8.875 percent 2018 notes rebounded to 74.2 cents, up from its earlier low of 73.4.

Sunac’s $400 million of 12.5 percent 2017 notes were little changed at 104.2 cents on the dollar.

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