Kaisa Offshore Creditors Won’t Agree to Debt Plan Friday

(Bloomberg) — A steering committee representing Kaisa Group Holdings Ltd.’s offshore bondholders won’t agree to the company’s proposed debt restructuring by Friday’s early bird deadline.

“We are working with the company to agree an acceptable and realistic timeline and process so that we can obtain for you a sensible revised proposal,” Kirkland & Ellis LLP, the law firm representing some of Kaisa’s creditors, said in an e-mail to bondholders Wednesday that was obtained by Bloomberg News.

Kaisa said last week offshore creditors stand to recover just 2.4 percent of their money in a liquidation, and proposed a debt rejig that would cut coupons and defer payment obligations by up to five years.

Sunac China Holdings Ltd. bought 49.3 percent of Kaisa on Jan. 30, and made a takeover offer that’s conditional upon a satisfactory debt restructuring. Kaisa is also seeking to cut the interest on its onshore obligations to as little as 70 percent of the base rate set by the People’s Bank of China, a March 2 filing showed.

“It’s expected that Kaisa bondholders won’t accept the initial proposal,” said Glenn Ko, a Hong Kong-based credit analyst at UBS Group AG. “Sunac still has an upper hand though because it can choose to walk away.”

Kaisa is proposing to reduce the coupon on its April 2016 notes to 3.1 percent from 6.875 percent and lower the interest on its 2017 debt to 4.7 percent from 12.875 percent. The coupon on its March 2018 debentures would be lowered to 5.2 percent from 8.875 percent, while that on its June 2019 notes would be trimmed to 6.4 percent from 9 percent.

Coupons Cut

The Shenzhen-based developer is also proposing to cut the rate on its January 2020 securities to 6.9 percent from 10.25 percent, and reduce the coupon on its December 2015 convertible bonds to 2.7 percent from 8 percent. It retains the option to issue payment-in-kind notes to bondholders up to 2017, in lieu of coupon payments.

Nine funds holding more than 25 percent of Kaisa’s about $2.5 billion of offshore bonds formed a steering committee last week to work on a counteroffer, a person familiar with the matter said March 16, asking not to be identified because the matter is private.

Neil McDonald, a partner at Kirkland & Ellis, wasn’t immediately available to comment.

Kaisa’s $500 million of 2020 notes rose 0.9 cents to 57.7 cents on the dollar as of 5:48 p.m. in Hong Kong, the highest in almost three weeks, Bloomberg-compiled prices show. Its shares closed down 1.2 percent at HK$1.60.

Interest Missed

Another person familiar with the matter said yesterday that Kaisa was likely to miss $16.1 million of interest due by the end of Wednesday on its $250 million of 2017 notes. It will also likely miss a deadline Thursday for a $35.5 million payment on its $800 million of 2018 securities, the person said.

Kaisa’s woes started late last year when the government in Shenzhen blocked approvals of its property sales and new projects in the city. It’s also being probed over alleged links to Jiang Zunyu, the former security chief of Shenzhen who was taken into custody as part of a graft probe, two people familiar with the matter said on Jan. 13.

As President Xi Jinping fights corruption, investors in Chinese property debt that ballooned after the global financial crisis are concerned losses may mount. Another builder, Shenzhen Kingkey Group, is also being investigated, people familiar with the matter said Monday. China’s slowing economy is dragging on an industry beset by falling home prices that data Wednesday showed spread to more cities last month.

‘Bad to Worse’

“Recent data show China’s real estate sector going from bad to worse, underlining how naive hopes for a speedy stabilization in the economy’s key growth engine have been,” BNP Paribas SA economist Richard Iley wrote in a March 18 note.

“Property transactions fell at an accelerating rate in the first two months of the year, suggesting that recent property easing measures have had little, or no, discernible impact. Even more alarming is that the pipeline of real estate projects under construction continues to rise relative to sales.”

Kaisa narrowly avoided becoming the first Chinese real estate company to default on its U.S. currency debt after paying a coupon on its 2020 bonds within a grace period last month. Several of its key executives also quit late last year.

The company said in a Hong Kong exchange filing Monday it was unprofitable last year and last month said it would post a “substantial decline” in net income for 2014, without providing figures. Wu Jiesi, Sunac’s mergers and acquisitions and restructuring chief, said last week Sunac’s “patience won’t last more than one to two months.”

The initial restructuring terms offered to Kaisa’s offshore bondholders “aren’t attractive and it’s quite logical the steering committee wants better terms,” according to Kenny Wu, a credit analyst at Citigroup Inc. “We’ll see more negotiations between both parties.”