Kaisa’s bonds rise but offshore creditors face waiting game ahead
Bonds issued by Kaisa Group rose sharply on Tuesday after the embattled Chinese property developer said it had received a waiver from HSBC Holdings on a loan it failed to repay in late December 2014.
Kaisa, which is struggling with the sudden departure of senior executives, government officials blocking sales at some of its projects in Shenzhen and a missed coupon payment on an offshore bond, made the announcement late on Monday.
Market participants are watching Kaisa closely as it could become the first Chinese property company to make an outright default on its offshore US dollar bonds, providing a test case for a bankruptcy law that took effect in 2007.
Onshore creditors are already circling the company, obtaining court orders to freeze its assets and demand immediate repayments of its debts. Offshore bondholders face a waiting game though, with little precedent for how they would recoup their money in the event of an outright default.
Kaisa’s bonds rose around 7 points across all maturities, with its US dollar bonds due in 2017, 2018, 2019 and 2020 all trading in the 42-49 cents on the dollar range. That compared with a low of around 30 cents on the dollar which it struck earlier this month, pushed higher by HSBC’s reprieve and hopes the company will restructure its debt.
Trading in Kaisa’s shares continues to be suspended.
While market watchers say that Kaisa’s troubles are largely company-specific, the rest of the property sector is expected to feel an impact amid speculation the company was targeted as part of China’s corruption crackdown.
Kaisa officials could not be reached for comment.
“Bond investors will demand a higher premium on property companies due to increased political risk,” said Charles Macgregor, the Asia head of credit research firm Lucror Analytics.
Kaisa also said in the Monday announcement that assets amounting to 651.2 million yuan ($105 million) at one of its units had been frozen by a court and that the sale of a Shanghai asset to developer China Vanke, announced on December 31, had been terminated by mutual agreement.
