Chinese Developer Kaisa Follows Evergrande Into Restructuring Talks
Kaisa says it didn’t pay sums due on dollar bonds, and has hired a restructuring adviser
Kaisa Group Holdings Ltd., which in 2015 became one of the first Chinese developers to default abroad, said it had failed to make several payments on dollar bonds as planned, and is talking to creditors about a wide-ranging restructuring plan.
The move sets the stage for parallel debt workouts by two of the mainland real-estate sector’s biggest offshore borrowers, Shenzhen-based Kaisa and China Evergrande Group. EGRNF 5.00% Kaisa said Monday it had $11.8 billion of dollar bonds outstanding, while the tally for Evergrande is nearly $20 billion.
China’s property sector has been reeling from government curbs on borrowing and declining home sales. A bond-market selloff has all but shut the market for new issuance, depriving developers of a crucial means of refinancing coming dollar debt.
Kaisa said it didn’t pay the principal and interest on a $400 million 6.5% note that matured on Dec. 7 and missed more than $105 million in overdue interest payments on three other bonds. Creditors haven’t demanded accelerated repayment yet, the company said.
The company said it had been in talks with bondholder representatives about “a comprehensive debt restructuring plan” covering its offshore bonds. It has hired restructuring specialist Houlihan Lokey Inc. as financial adviser, and the law firm Sidley Austin. Houlihan is also advising Evergrande and another developer that recently defaulted, Fantasia Holdings Group Co.
Kaisa is in talks with creditors holding a large chunk of its international debt, who are being advised by Lazard Ltd. , according to a person familiar with the matter. The bondholders have proposed a roughly $2 billion financing package to Kaisa with multiple options including equity rights, convertible bonds, bridge loans and other instruments, the person said.
Kaisa and Lazard have agreed to the terms of a nondisclosure agreement that would allow the investment bank to better assess the company’s cash shortfall, the person added, saying the agreement has yet to be signed.
The company’s contracted sales for November totaled just 1.01 billion yuan, the equivalent of $157 million. That is roughly 8% of the year-ago figure, when Kaisa reported 12.53 billion yuan of contracted sales, including sales generated with joint ventures and associates. “While the group continues to develop and sell properties in its ordinary course of business, the confidence of potential property purchases remains dampened in December,” it said.
Contracted sales reflect new contracts signed with home buyers and are more forward-looking than revenue, which is typically recorded when companies hand completed units over to purchasers.
Hong Kong-listed shares of Kaisa, which were halted the day after the $400 million bond was due, resumed trading and dropped 14% in morning trade Monday.
Several smaller developers such as Fantasia, Modern Land (China) Co. and Sinic Holdings Group Co. have defaulted in recent months. Earlier this month Fitch Ratings cut its assessment of Kaisa to a “restricted default” rating.
The People’s Bank of China cut banks’ reserve requirements earlier this month, a move some economists said could signal the start of an easing cycle. On Monday, the central bank made a modest cut to a key lending rate, the one-year loan prime rate, lowering it to 3.80% from 3.85%.