China developer rescue more grey knight than white

Hong Kong

CHINA'S property market has too much property and too little market. The murky rescue of developer Kaisa makes that imbalance a little worse. The Shenzhen-based group is a study in high-speed failure. In the past two months it was blocked from selling some properties by local authorities, defaulted on a loan, and lost most of its senior executives. Now there may be a white knight. Rival Sunac has bought a 49 per cent stake from Kaisa's outgoing chairman, according to a filing in Hong Kong, where both companies are listed. Under local rules, that is likely to trigger a full takeover offer.

Tentatively, this is a win for foreign bondholders. A change of leadership may not bring in new capital, but could help Kaisa schmooze away some of its political problems. The combined company would have a cash of US$4.3 billion, based on last-published figures from June 30, after deducting the implied US$1.2 billion that Sunac would have to fork out for a full takeover at the same price it paid for its stake. That's more than enough to cover US$23 million of missed interest payments. Sunac, which has US$1.3 billion of offshore bonds outstanding, has little to gain from ignoring overseas bondholders' claims.