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China developer Sunac says Kaisa can't survive if takeover deal fails

[HONG KONG] Developer Sunac China on Tuesday urged creditors of its takeover target Kaisa Group Holdings, to accept a plan by the struggling property firm to restructure US$2.5 billion in debt or risk the company running out of cash by end-April.

Sunac's comments come days after a group of Kaisa offshore bondholders rejected the company's debt proposal. Sunac had said any deal was conditional upon Kaisa resolving its debt issues.

At an earnings briefing, Sunac Chairman and Chief Executive Officer Hongbin Sun said Kaisa's financial woes were "very severe", and warned his company would walk away from the deal if its bondholders did not cooperate.

"Offshore creditors don't understand Kaisa's real situation," he said. "If they understand they will think the proposal is a reasonable one."

Kaisa declined to comment on its finances, saying it would report its own earnings on March 31. The legal representative of the creditor group, which owns more than half of Kaisa's bonds, was also not immediately available to comment.

Kaisa debt woes underscore the risk developers face in China's slumping property sector, which has been hit by the slowing economy and a raft of cooling measures.

Official data showed average new home prices fell at the fastest pace on record in February, also raising concerns about the finances of the highly leveraged developers.

Kaisa's bonds due 2018 traded at 60/61, a point off morning highs, with traders saying bondholders appeared unfazed by what they called "scare tactics".

Sunac has been trying to grow its market share aggressively through acquisitions. Rui Guo, credit analyst at Mitsubishi UFJ Securities, said Kaisa's takeover would be a cheap way for Sunac to expand in the rapidly growing Pearl River Delta market. "Chairman Sun's main focus is to get the deal done," he said.

Sunac, which has a market value of just under US$3 billion, agreed in February to buy a 49.25 per cent stake in Kaisa, a lifeline for the company which ran into financial trouble after the authorities froze some of its projects late last year.

Under Kaisa's plan for its offshore and convertible debt, the maturity on six sets of bonds due each year through to 2020 would be extended by five years and coupons would be slashed. There would, however, be no reduction in principal.

Kaisa's liquidation would have worse consequences for creditors than the current restructuring plan: a report by advisors Deloitte Touche Tohmatsu said offshore creditors in a liquidation scenario would only receive 2.4 per cent of what they were owed.


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