Kaisa Bonds Slide After Builder Says Debt Tweaks Needed
by Lianting Tu and Dominic Lau
11:18 AM AWST
February 12, 2015
(Bloomberg) -- Kaisa Group Holdings Ltd., the Chinese developer embroiled in an anti-graft probe, sent prices on its bonds sliding after saying it expects it will need to change its international debt obligations.
Its $500 million of bonds due in 2020 dropped 6.8 cents on the dollar to 62 cents as of 11:09 a.m. in Hong Kong, the lowest since Feb. 3, according to prices compiled by Bloomberg. That’s down from a high of 75.5 last week, when Sunac China Holdings Ltd. said it had bought a 49.3 percent stake in the builder.
Kaisa said in a filing Wednesday that it “expects material modifications to the Group’s offshore debt obligations to be necessary” to allow the stake purchase to go ahead. The developer’s woes began late last year when some of its projects were blocked in the southern Chinese city of Shenzhen, where it is being investigated over alleged links to a senior official, people familiar with the matter said last month.
“We believe that this will result in a distressed exchange for dollar bondholders,” Charles Macgregor, the Singapore-based head of Asia high-yield research at independent research firm Lucror Analytics, wrote in a note. “A distressed exchange occurs when an offer is made to creditors that is less than the original obligation with the effect of the transaction being the avoidance of an eventual payment default.”
Deal Prospects
While investors received payment on the coupon for the 2020 bonds after the stake purchase announcement last week, Sunac’s Chairman Sun Hongbin had said in an interview with Bloomberg earlier in the week that there was a 50 percent chance the deal would get done.
Sun said that even as he doesn’t want any creditors to suffer losses, he needs time and revisions to some debt terms, without specifying. Kaisa’s onshore obligations maturing in the first quarter alone total about 7.5 billion yuan ($1.2 billion), and it may be difficult to repay all of them on time, he added.
“Whether the group meets upcoming payments under its existing debt obligations will be based on an assessment of the overall financial condition of the group and lenders and bondholders should not expect payments of principal and interest according to existing terms,” Kaisa said in its statement Wednesday night to the Hong Kong stock exchange.
Obligations
The Shenzhen-based developer said on Feb. 8 that it had made the interest payment of $23 million on its 2020 notes, meeting a grace-period deadline and avoiding a default after missing an initial due date in January. The company still faces repayment demands, and said on Monday that it received notices from creditors, including project partners and suppliers, seeking about 28 billion yuan ($4.5 billion) as of Jan. 31.
The builder is being probed over alleged dealings with Jiang Zunyu, Shenzhen’s former security chief, who has been under investigation since October, two people familiar with the matter said last month.
Kaisa’s shares dropped 4.8 percent in Hong Kong to HK$1.59 as of 11:05 a.m. The price on its $800 million notes due in 2018 slid 7.4 cents on the dollar to 61.2 cents, the lowest since Feb. 3, Bloomberg-compiled prices show.
“Today’s sell-off in Kaisa bonds could provide a good opportunity to buy some of its bonds,” said Kenny Wu, a credit analyst in Hong Kong at Citigroup Inc. “A moderate haircut is even better than a long delay in coupon payments or extension of maturities.”
Sunac is seeking to acquire the shares it doesn’t already own, the companies said in a joint statement on Feb. 6. The deal helped Kaisa avoid a default and lets Sunac expand into southern Chinese cities such as Shenzhen. Sunac is based in the northern city of Tianjin.
Modifications Eyed
Kaisa intended to complete an agreement with debtors by the end of April, according to the Wednesday filing. The company hired Houlihan Lokey China Ltd. to provide advice on capital structure, including debt.
Frank Chen, an investor relations officer at Kaisa, said that questions concerning whether any changes in bond terms would result in a distressed exchange should be referred to Houlihan Lokey. There was no immediate reply to e-mailed questions to Brandon Gale, a representative for Kaisa at Houlihan Lokey.
Kaisa’s statement “could mean that the restructuring follows with a maturity extension, haircut, coupon deferral and looser covenants,” according to a research note from BNP Paribas SA sent Wednesday night.
To contact the reporters on this story: Lianting Tu in Hong Kong at ltu4@bloomberg.net; Dominic Lau in Hong Kong at dlau92@bloomberg.net
To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Katrina Nicholas at knicholas2@bloomberg.net Andrew Monahan