Kaisa Bonds Rally After Rival Debt Restructuring Proposals

  • Developer's 2018 bonds jump the most since September
  • Kaisa is first Chinese builder to default on dollar notes

The bonds of Chinese developer Kaisa Group Holdings Ltd. rallied the most since September after two groups of creditors put forward rival restructuring proposals.

A group of noteholders submitted a non-binding letter of support for a restructuring proposal whose terms were agreed to in principle with Kaisa, according to a Nov. 6 company filing. The plan would replace the builder’s current offshore bonds with new notes of maturities ranging from four to six years. San Francisco-based hedge fund Farallon Capital offered a competing proposal which entails the injection of $150 million in cash through the acquisition of an equity stake in the company, in addition to warrants to purchase common equity that would total about $500 million.

The offer from the bondholders could see noteholders recover at least 75 percent of their investments, according to calculations of Citic Securities International Co. Under the Farallon plan, restructuring terms may allow bondholders to recover 85 to 100 percent of their money, the person familiar with the matter said. Kaisa bonds due in 2018 rose 4 cents on the dollar to 69 cents as of 12:13 p.m. in Hong Kong, the most since Sept. 11, according to prices compiled by Bloomberg.

“The issue here is whether Chairman Kwok Ying Shing is prepared to cede some of his holdings and control,” said Charles Macgregor, the Singapore-based head of Asian high-yield research at Lucror Analytics. “Offshore creditors do not have a strong bargaining position and may have to accept Chairman Kwok’s offer if he does not support the Farallon bid.”

‘Bargaining Power’

A person who answered a call at Farallon Capital offices in Singapore referred questions to the legal department. There was no immediate reply to an e-mail sent to the legal department.

Kaisa spokeswoman Zhou Ting declined to immediately comment on any plan from Farallon.

Shenzhen-based Kaisa became the first Chinese developer to default on dollar-denominated debt when it failed to pay the coupon on two securities earlier this year. In October the builder reached an agreement with Bank of China Ltd. that enabled it to restart sales of some projects. China’s slowest growth since 1990 is crimping cash flows at miners, steelmakers and developers and more pain may be in store after record rating downgrades on the nation’s borrowers this year.

“It’s good to see an official company plan with some non-binding support from the steering committee and a counter proposal from Farallon at the same time,’’ said Zhi Wei Feng, credit analyst at Standard Chartered Plc. “It gives bondholders more bargaining power for an upside in recovery.’’

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