Kaisa Investors Wary on Bond Coupon Payments Next Month
by Lianting Tu
9:38 AM AWST
February 13, 2015
(Bloomberg) -- Offshore bond investors of Kaisa Group Holdings Ltd. are becoming increasingly concerned about the risk the troubled Chinese developer embroiled in an anti-graft investigation could miss coupon payments next month.
Kaisa must pay $16.1 million of interest March 18 on its $250 million of bonds due 2017, and $35.5 million March 19 on its $800 million securities due 2018, Bloomberg-compiled data show. It avoided a default last Friday by making an interest payment of $23 million on its 2020 notes before the grace period deadline.
The developer, under investigation over alleged links to a senior official in the southern city of Shenzhen, has fueled concern losses could spread for investors in Chinese companies amid President Xi Jinping’s anti-graft drive. Kaisa said in a filing Wednesday it “expects material modifications” to offshore obligations as it aims to reach a preliminary agreement with creditors by March 31, and complete the process by April 30.
“It seems increasingly likely that Kaisa will miss the two coupons due in March given it is now negotiating with bondholders for a restructure,” said Charles Macgregor, the Singapore-based head of Asia high-yield research at independent research firm Lucror Analytics.
Kenny Wu, a credit analyst in Hong Kong at Citigroup Inc., also believes the coupon payments are likely to be suspended or delayed in the restructuring process given Kaisa’s lack of liquidity.
Sunac’s Conditions
Frank Chen, an investor relations officer at Kaisa, didn’t immediately respond to e-mailed questions seeking comment. A call to his mobile phone went unanswered.
Kaisa has hired Houlihan Lokey China Ltd. to provide advice on capital structure, including debt, according to its filing earlier this week. Brandon Gale, a representative for Kaisa at Houlihan Lokey, didn’t immediately reply to an e-mail seeking comment.
The Shenzhen-based 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.
Haircuts Unacceptable
Sunac China Holdings Ltd., which bought a 49.3 percent stake in Kaisa on Jan. 30, proposed on Feb. 6 to buy the shares it doesn’t already own. The Tianjin-based developer listed as a pre-condition for the acquisition “part or all of the existing debts having been restructured and refinanced, and that there is no occurrence of event of default or potential event of default under the existing debts.”
Kaisa said in its Wednesday filing that “lenders and bondholders should not expect payments of principal and interest according to existing terms.”
“As investors, the last thing we would accept is a haircut,” said Gordon Ip, a portfolio manager at Value Partners, which managed $12.9 billion of assets at of Dec. 31. “Delaying coupons would probably be more acceptable. Pushing a haircut will send an extremely negative signal to the market, and will certainly affect both future bond issues for Kaisa and Sunac.”
The offer to buy Kaisa’s outstanding shares at HK$1.80 apiece values the company at HK$9.24 billion ($1.2 billion), or about 30 percent of its net asset value, the most common measure used to value property companies, according to the company’s 2014 mid-year report. Sunac’s current market value of HK$23.9 billion is about equivalent to its net asset value.
“Sunac is in a very comfortable position,” Singapore-based Brayan Lai, a money manager at One Asia Investment Partners Ltd., a credit hedge fund with about $200 million of assets, said by phone. “They can walk away or proceed with the deal very easily.”
To contact the reporter on this story: Lianting Tu in Hong Kong at ltu4@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Andrew Monahan