Photographer: Tomohiro Ohsumi/Bloomberg

Chinese Property Developer Kaisa May Come Off Life Support

  • Kaisa will hold board meeting on 2014-2016 results on Saturday
  • Some analysts see speculative buying when trading resumes

Is that a glimmer of light at the end of the tunnel for Kaisa Group Holdings Ltd.?

Perhaps. Saddled with the ignominious label of being the first and only Chinese property developer to default on overseas debt, Kaisa is finally going to hold a board meeting -- after several delays -- to approve the publication of its annual results for the first time in three years.

Releasing the long overdue results is the final condition the Shenzhen-based developer needs to meet before applying to lift its two-year trading suspension. Saturday’s meeting will be followed by briefings for investors and media. Some fresh clarity would be welcomed.

Even with uncertainty clouding the company, Kaisa’s 2021 notes have risen to 100 cents, the highest since the new bonds were sold in July following a debt restructuring. That’s been driven by optimism over a resumption of trading. Last month, Kaisa restored the public float back to the required 25 percent.

“It will take time to bring institutional investors back after such a long suspension,” said CIMB Securities analyst Raymond Cheng, who covered the stock in 2014. “But there will be some speculative buying if trading resumes,” he said, based on Kaisa’s considerable assets in Shenzhen, where property prices continue to flourish.

Kaisa’s woes began when Shenzhen authorities blocked sales of some of its projects during a regulatory probe. Founder Kwok Ying Shing agreed to sell his family’s stake to Sunac China Holdings Ltd., only for it to drop the deal saying Kaisa accounts underestimated its troubles. Kwok negotiated the debt restructuring completed last July. A report released in December by FTI Consulting showed former company executives used undisclosed borrowing pacts in the runup to the developer’s default in 2015.

Kaisa shares were at HK$1.56 when trading was suspended on March 31, 2015. The company last reported results in August 2014. Kaisa’s senior adviser Tam Lai Ling declined to comment on the timing of a possible trading resumption.

“Investors will scrutinize the results, but whether this will set the tone for future outlook is too early to say.” said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore. “Investors should think through whether they want to be involved with a company which has credibility issues simply because it is announcing results. Isn’t it a basic thing for a listed company to report results in time?”

Kaisa’s debt, land bank, auditor’s report, and steps the company has taken to rebuild investors’ confidence will be among the key points under scrutiny in the earnings report and during briefings, analysts and investors said.

WHAT TO WATCH 

  • Debt
  • Assets 
    • As Sept. 30, 2015, Kaisa had a total land bank of 22.5 million square meters; 18 out of 87 of its property development projects are in Shenzhen: statement
    • Kaisa also has 10 urban renewal projects in the pipeline that may contribute about 3 million square meters in gross floor area for future development: Tam Lai Ling 
      • Nine out of these 10 projects are in Shenzhen: Tam 
    • READ: Sunac Found Kaisa Had Zero Net Asset Value During Talks

  • Views
    • Investors won’t be too interested in Kaisa stock just yet as there are plenty of other choices in the Chinese property developer sector: Core-Pacific Yamachi HK head of research Castor Pang
      • Solid improvement in operations is needed for investors to regain confidence in Kaisa stock: Pang
    • Watch for management comment on future financing plans as they “may be affected by company’s reputation”: RHB Osk Securities analyst Toni Ho
      • While institutional investors could sell stakes when trade resumes, some may speculate on a share-price jump as positives such as the sector rally and hot Chinese property market haven’t been priced into Kaisa’s stock price: Ho
    • “Results will not be good and I would not be surprised to see qualified opinions, otherwise the company would not have defaulted,” said Glenn Ko, head of Asia desk trading strategy at HSBC Holdings Plc. in Hong Kong.
      • There is still some relative value in Kaisa bonds but the premium is lower at current levels.
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