By Esther Fung
BEIJING--Troubled Chinese property developer Kaisa Group
Holdings Ltd. could face a fight with its offshore creditors,
analysts said, after offering restructuring terms on $2.5 billion
in debt that would leave them worse off than Chinese lenders.
Kaisa, in a conference call with offshore creditors and analysts
on Monday morning, reiterated its proposed terms for offshore
creditors and highlighted the threat of a liquidation. It said
offshore creditors would recover only 2.4% of their investment if a
rescue deal with another property developer fails.
Offshore creditors "may not accept the first offer, and I expect
there will be some negotiation," said Standard & Poor's credit
analyst Christopher Lee. "At face value, the terms offered to both
onshore and offshore creditors appear to be similar, but the
offshore creditors are worse off."
Brandon Gale, a senior vice president at Houlihan Lokey, Kaisa's
financial adviser, said they were "getting feedback" from the
creditors, and declined to give additional details. Neil McDonald,
a partner at the law firm Kirkland and Ellis, who is representing
offshore creditors in negotiations with Kaisa, didn't respond to
requests for comment.
Standard & Poor's said Monday that it will downgrade
junk-rated Kaisa and lower the ratings on its outstanding notes if
the company completes the restructuring of offshore debt under
current proposed terms. Kaisa's notes, which are currently rated
"CC," could be downgraded to "D", as S&P views the current
terms as a "distressed exchange offer."
The terms, disclosed in a filing to the Hong Kong Stock Exchange
late Sunday, included cutting the interest rates on six issuances
of bonds and convertible bonds by as much as two-thirds and an
extension of maturities by five years. While offshore creditors are
structurally subordinate to onshore creditors, some analysts said
that the terms offered to the former seemed disproportionate.
"Kaisa is facing liquidity rather than insolvency issues," said
Glenn Ko, an analyst at UBS Global Research in a note. "Hence, we
are surprised to see the five-year maturity extension across the
board and consider the extension not necessary."
Kaisa has asked the offshore bondholders to approve the
restructuring by March 20.
Last week, Kaisa said it is looking to extend maturity on
Chinese onshore debt by three to six years and cuts to coupon
payments to a floor of 70% of the base rate set by the People's
Bank of China, China's central bank. The PBOC's one-year benchmark
lending rate is currently 5.35%.
"It appears the creditors are forced to take a longer view as
they'd have to remain invested in the firm for 10 years," said Mr.
Lee.
Some offshore creditors are betting on the possibility that
Kaisa could sweeten its restructuring offer to complete the rescue
from the other property developer. Sunac China Holdings Ltd. plans
to acquire 49.25% of Kaisa for 4.55 billion Hong Kong dollars, and
then buy the rest from investors--a plan that Kaisa says hinges on
its ability to restructure its debt.
"It's the opening round, and it's a game of chicken," said one
lawyer who has knowledge of the discussion among creditors.
More than two dozen foreign fund companies, ranging from
BlackRock Inc. to Fidelity Investments, owned Kaisa debt in recent
months, according to Thomson Reuters, but it isn't clear how many
currently hold the debt. BlackRock and Fidelity declined to comment
on Monday.
Kaisa said that its total cash balance has decreased to 1.9
billion yuan as of March 2 from 10.9 billion yuan from June 2014,
due to the sale blockages and asset freezes. The company said that
it will run out of cash by the middle of 2015.
Kaisa's woes started late last year, when the Shenzhen
authorities blocked sales of its projects without providing a
reason, and numerous senior executives later resigned, including
chairman Kwok Ying Shing. Many creditors demanded early repayment
of debt after his resignation, and local courts have blocked the
sale or frozen 22 of the firm's projects and bank accounts
following litigation proceedings from its creditors.
The property developer had announced sharply-higher debt levels
at the end of December 2014 at 65 billion yuan, more than doubling
the 30 billion yuan recorded in late June 2014.
Kaisa's dollar-denominated bond due 2017 fell 8 cents to 51.4
cents on the dollar, while its shares fell as much as 3.7% to
HK$1.57 during intraday trading Monday, before ending at
HK$1.58.
Anjie Zheng in Hong Kong Contributed to This Article
Write to Esther Fung at
esther.fung@wsj.com<mailto:esther.fung@wsj.com>
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