Kaisa’s Offshore Lenders Are Pressing For Better Terms

Kaisa needs to restructure its debt before it can be acquired by Sunac in a rescue bid

By ESTHER FUNG
Updated March 11, 2015 10:26 a.m. ET

SHANGHAI -- Kaisa Group Holdings Ltd.'s offshore bondholders are pressing for better terms for restructuring $2.5 billion in debt. 

The Chinese property developer is seeking to extend the maturities of the bonds by five years, cut the interest rates by as much as two-thirds and defer interest payments for the first two years, according to a filing posted on the Hong Kong stock exchange's website Sunday evening. 

"The bondholders are not happy and will approach the company with revised terms in due course," said Neil McDonald, a partner at the law firm Kirkland & Ellis who is representing offshore bondholders. 

One person with knowledge of bondholders' deliberations said they were particularly balking at the five-year extension. "They don't want to be holding the debt for so long," the person said. "They won't be too quick to accept the terms. That's akin to leaving money on the table." 

The bondholders will make a counteroffer as soon as they can, said Mr. McDonald. Kaisa has asked the offshore bondholders to approve the restructuring by March 20. 

During a conference call between lawyers from Kirkland & Ellis and offshore creditors Tuesday evening, some bondholders suggested that Sunac China Holdings Ltd., which is in the midst of a rescue bid for Kaisa, guarantee the new Kaisa bonds. 

Kaisa's proposal is a "lowball opening bid" and needs to be sweetened, said J.P. Morgan credit-research analysts Daniel Fan and Soo Chong Lim in a note. To gain approval, the firm would have to improve the proposal, perhaps by offering to step up interest rates in around three years as the company's operations normalize, they added. 

Kaisa needs to gain the approval from holders of 75% in value of bonds and 50% of the number of votes cast. 

"Offshore lenders may have some leverage to seek better terms. That said, onshore lenders may not be willing to accept better terms for the offshore lenders," said Charles Macgregor, head of Asia at Lucror Analytics. 

Kaisa needs to restructure its debt before it can be acquired by Sunac. On Sunday, Kaisa said that its total cash balance had declined to 1.9 billion yuan ($304 million) as of March 2 from 10.9 billion yuan in June because authorities have frozen many of its assets and blocked sales of properties in a number of its projects. The company will run out of cash by the middle of 2015, it said. 

Late last year, authorities in the southern city of Shenzhen, where Kaisa has its headquarters, blocked sales in Kaisa projects, without providing a reason. Numerous senior executives later resigned, including Chairman Kwok Ying Shing. 

Following his resignation, many creditors demanded early repayment of debt. In response to litigation by creditors, local courts across China have blocked for sale or frozen 22 of the firm's projects and bank accounts.

Write to Esther Fung at esther.fung@wsj.com