Kaisa Bonds Fall as Developer Criticizes New Farallon Debt Plan

  • Parts of restructuring proposal not commercially viable: Kaisa
  • Dollar notes continue slide to lowest level since October

Kaisa Group Holdings Ltd. bonds fell to the lowest since October after the firm poured cold water on a rival debt restructuring proposal from offshore creditors, making a resolution seem more distant and difficult.

Last week’s plan from investors led by Farallon Capital Management LLC will burden Kaisa with extra financing needs amid poor market conditions, the Chinese developer said in a filing to the Hong Kong stock exchange. Kaisa’s $800 million of 8.875 percent notes due March 2018 dropped 2 cents to 63.57 cents on the dollar as of 9:31 a.m. in Hong Kong, the lowest since Oct. 30, according to Bloomberg-compiled prices.

“Based on a preliminary assessment of the terms, the board believes that the alternative proposal will put undue pressure on the company to seek additional financing which is not commercially viable in the current environment,” Kaisa said. “The company will continue to explore options in the interest of the stakeholders.”

The response is set to prolong a two-month spat between Kaisa and the San Francisco-based hedge fund, as the developer persuades offshore bondholders to sign up to its own plan by Feb. 7. Farallon and BFAM Partners submitted a counter-proposal to Kaisa on Jan. 14 after the developer rebuffed the investors’ first rescue plan in November as “questionable” and said it wouldn’t pass regulatory hurdles.

Bond Slide

Kaisa said it still favors its own plan to reorganize some $2.45 billion of notes with foreign bondholders as the terms have been extensively negotiated and “broadly supported” by the market. The company’s $500 million of 10.25 percent 2020 notes fell 0.15 cents to 63.36 cents.

Farallon’s proposal last week offered bondholders an 87 percent recovery value versus 75 percent from Kaisa’s proposal. It also offers them some cash coupon in the first year and requires lenders and shareholders including chairman Kwok Ying Shing to subscribe to $200 million of eight-year zero-coupon junior bonds.

“The counter proposal requires a $200 million cash injection by the chairman and existing shareholders,” said Cheong Yin Chin, a credit analyst in Singapore at CreditSights Inc. “I doubt he is willing to pump in more money.”

The developer’s own plan offers bondholders and lenders a consent fee of 0.5 percent to 1 percent of holdings to support its plan, it said in a Jan. 10 filing. The company defaulted on its dollar securities early last year amid a corruption probe, the first Chinese developer to renege on offshore repayments.

Kaisa’s offshore notes and HK$1.4 billion ($179 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 that mature in four to six years and pay a coupon in kind in the first year, with a combination of cash and kind thereafter.

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