China's Kaisa tries to avoid default with bondholder offer

[SHANGHAI] Kaisa Group Holdings is asking creditors to swap at least US$380 million of its bonds, the latest step by a Chinese developer to avert a default during the industry's cash crunch.

The builder has offered to exchange at least 95 per cent of its US$400 million 6.5 per cent note maturing on Dec 7 for new notes with the same coupon maturing June 2023. If the offer to bondholders fails, the developer may not be able to repay bonds and could consider a debt restructuring, it said in a stock exchange filing on Thursday (Nov 25). Kaisa's bonds fell, while its shares jumped as the stock resumed trading following a 3-week halt.

In a potential boost to its cash stockpiles, the firm agreed to sell its stake in a land site in Hong Kong, a separate statement showed. Shenzhen-based Kaisa is the latest real estate firm trying to shore up its finances as the debt crisis originally centred on China Evergrande Group engulfs the industry. The liquidity squeeze follows a government campaign to reduce leverage in the sector, and has been made worse by a slump in home sales and prices.

"Despite our efforts to reduce our interest-bearing debt in response to government regulations, the current sharp downturn in the financing environment has limited our funding sources to address the upcoming maturities," Kaisa said in the statement.

Kaisa, which in 2015 became China's first developer to default on US dollar notes, has since become the sector's third-largest issuer of such bonds, with more than US$11 billion outstanding. A failed extension and outright default could pose a significant risk for global investors who are diving back into offshore property bonds on bets that the worst of the recent market rout may be over.

Kaisa's 2021 note dropped 3.5 cents on the dollar to 47 cents as at 4.14 pm in Hong Kong on Thursday, on track for the biggest decline since Nov 9, according to Bloomberg-compiled prices. Its stock jumped 14 per cent.

The bond proposal includes an additional cash offer of US$25 for every US$1,000 of the principal amount exchanged. Still, it could be tough to get across the line with a minimum acceptance of 95 per cent, Bloomberg Intelligence analyst Daniel Fan wrote in a note. On top of that, Kaisa will still have to deal with another US$2.8 billion in US dollar bonds coming due next year, including a US$550 million note in April.

A set of Kaisa's offshore bondholders has hired advisers, according to sources with knowledge of the situation. The statement came hours after Kaisa announced plans to resume trading of its stock, repay overdue wealth management products and speed up the disposal of real estate projects and "high-quality assets".

BLOOMBERG