Kaisa Pushes Ahead With Bond Restructure Plan, Offers Incentives

  • Developer says will pay consent fees to supporting creditors
  • Plan isn't fair to offshore creditors, bondholder says

Kaisa Group Holdings Ltd. pressed ahead with a plan to restructure its offshore bonds by offering incentives to creditors almost two months after rejecting a rival proposal from a U.S. hedge fund.

The developer will pay bondholders and lenders a consent fee equivalent to 1 percent of holdings if they support the plan by Jan. 24, according to a filing to the Hong Kong stock exchange dated Sunday. The incentive drops to 0.5 percent for signup between Jan. 25 and Feb. 7. The agreement will deter creditors from selling their holdings and prevent them taking enforcement actions as co-founder and Chairman Kwok Ying Shing seeks to convert $2.45 billion of Kaisa’s local and foreign-currency bonds into new dollar-denominated debt.

China’s slowing economy is under scrutiny as local companies reorganize debt following a year in which Shenzhen-based Kaisa became the first developer to default in the dollar bond market. Commodity and steel producers including Hidili Industry International Development Ltd. have also reneged on bond and loan repayments while a stock plunge in the opening week of 2016 added to market volatility.

“This does make a mockery of priority of claims because there is no dilution in Kwok’s stake in the company and debt holders are taking a haircut,” said Alex Turnbull, chief investment officer of Keshik Capital Pte in Singapore, which owns Kaisa notes. He said while the restructuring is likely to succeed, “it’s not fair to the offshore creditors at all. As a large global creditor, China should think twice about aiding and abetting these kinds of deals.”

Rival Plan

Kaisa in November rebuffed a competing plan from Farallon Capital Management LLC to rescue the developer, saying the San Franscisco-based hedge fund’s proposal undervalued the company, strained shareholders with a $500 million cash call and was likely to fail a regulatory review.

The company’s proposal is “commercially acceptable to both parties,” Kaisa’s senior adviser Tam Lai Ling said in a text message. “There isn’t any principal haircut. After the restructuring is done, the market price of the bonds will reflect the gradual recovery of company business.”

Kaisa’s $800 million of 8.875 percent notes due March 2018 fell 0.26 cent to 69.11 cents on the dollar as of 11:04 a.m. in Hong Kong, according to Bloomberg-compiled prices. The securities have risen 1.06 cents in the past two weeks. The company’s 10.25 percent notes due January 2020 dropped 0.22 cent to 68.17 cents.

Farallon officials based in Singapore didn’t immediately reply to e-mails seeking comment.

Kaisa offshore notes and HK$1.4 billion ($180.4 million) of loan facilities from HSBC Holdings Plc and Industrial & Commercial Bank of China Asia Ltd. are among more than $10 billion of debt disclosed by the company at the end of June. The developer plans to exchange its existing notes into new bonds maturing in four to six years, and paying coupon in kind in the first year and a combination of cash and kind thereafter.

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