Chinese Developer Kaisa Fails to Agree on Bond Swap
Kaisa had proposed exchange for bonds coming due Dec. 7
Chinese property developer Kaisa Group Holdings Ltd. 1638 -9.80% failed to persuade bondholders to agree to a $400 million debt swap and warned it might not be able to repay creditors when the bonds it was trying to exchange mature next week.
Shenzhen-based Kaisa is one of the Chinese property sector’s biggest offshore borrowers, after China Evergrande Group, with about $10.9 billion of dollar bonds outstanding as of the end of June. In 2015, it became one of the first Chinese developers to default abroad.
Kaisa had proposed exchanging $400 million of debt due Dec. 7 for new notes due in June 2023. On Friday, it said some investors had tendered their bonds, but it was unable to reach the minimum 95% threshold it had set for the deal to proceed.
“There is no guarantee that the company will be able to meet the repayment obligations under the existing notes at maturity,” Kaisa said in a filing. “If the company is unable to repay the existing notes at its maturity or agree with its holders on alternative arrangements, it would have a material adverse effect on the group’s financial condition.”
Kaisa said it was in discussions with some holders of the bonds that mature next week. It said it would explore solutions to its liquidity problem, including renewing and extending borrowings and selling assets.
Soon after the proposed exchange was announced, Nomura credit analyst Iris Chen wrote in a note to clients that the proposal didn’t solve Kaisa’s liquidity problems, while the terms didn’t offer enough incentive for bondholders to exchange.
Efforts by Beijing to control developers’ leverage, a slowdown in home sales and the crisis at Evergrande have rattled investors. As prices for outstanding debt have fallen, the market for new dollar-bond sales has all but shut—making it tough for property companies to refinance obligations that are coming due.
Several developers have defaulted on dollar debt in recent months, including China Properties Group Ltd. and Fantasia Holdings Group Co. , while others, such as Yango Group Co. and Xinyuan Real Estate Co. , have carried out successful debt swaps. Ratings firms often classify these as distressed-debt exchanges, meaning they help companies avoid formal defaults but switch investors into less financially attractive securities.
Hong Kong-listed Kaisa is also nearing the end of a 30-day grace period for more than $88 million of coupon payments that were due last month but that it failed to pay on time. It didn’t specify whether there was any such grace period for repayment of principal on its maturing bonds.
A Kaisa bond due 2024 was bid at about 36.5 cents on the dollar on Friday morning in Hong Kong, according to Tradeweb. Kaisa’s credit ratings have already been slashed to levels that indicate a high risk of default, and its shares have tumbled.
Kaisa said last month that it plans to speed up asset disposals to meet investor obligations, adding that it would try to sell assets in Shenzhen, Shanghai and other places.