Anxious Kaisa investors throw good money after bad

Anxious Kaisa investors throw good money after bad

Men work at the construction site of the Beijing Xishan Palace apartment complex developed by Kaisa Group Holdings Ltd in Beijing, China, November 5, 2021. REUTERS/Thomas Peter

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HONG KONG, Sept. 21 (Reuters) – The foreign bondholders of Chinese property developer Kaisa (1638.HK), which has begun to default on $12 billion in external credit, are offering up to $2 billion to take over troubled housing projects as well as repay their debts. debt structuring. . A similar proposal failed last year, but as his problems worsen, Kaisa may reconsider. Pricing is the trick.

As with most holders of dollar bonds issued by Chinese developers, Kaisa investors are in a tough spot. The Shenzhen-based company has not released its annual report for 2021, so there is little insight into its current financial position. Its shares have been off since April, and its bonds are trading as low as 10 cents on the dollar. With their backs on the wall, the group is proposing a 20% devaluation of the dollar bills in addition to an injection of equity capital. In addition, they want to buy non-performing loans tied to unfinished housing developments at a discount of between 20% and 25%, according to Reuters Read more, then take out the collateral and complete the projects.

This is the second attempt of its kind. After Kaisa defaulted on $400 million in bonds in December, bondholders offered Read More to buy up to $1 billion of its bad loans, but Kaisa banks ignored the offer. After all, Kaisa was the first Chinese real estate company to default on dollar debt during a small real estate crash in 2015, however, Chairman Kwok Ying-shing managed to turn the company around while holding onto control.

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But this crisis looks more serious than 2015. Credit rating agency Moody’s estimates that property sales could shrink another 20% by next June. Kaisa’s sales plunged 80% in the first eight months of this year, according to Chinese consultancy CRIC.

Local governments are under increasing pressure from Beijing to ensure distressed housing projects are handed over to private developers and previously sold to buyers to avoid social unrest. Read more but their budgets are constrained by dwindling revenue from land sales, which was down 32% year-over-year during the first seven months of 2022. State-owned asset managers and lenders are constrained by capital adequacy and leverage requirements. This should make them all more open to showing off the group this time around.

The discussion will be about the discount. Many distressed projects appear to be located in attractive locations, making it easy to sell once completed, but often such projects are secretly pledged as collateral multiple times and are saddled with hidden debts. This deal may go further than the previous one, but that doesn’t mean it will close.

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A group of overseas bondholders of Shenzhen-based Chinese real estate developer Kaisa is offering up to $2 billion to buy some non-performing loans from Kaisa’s lenders, linked to unfinished housing projects, at a discount of 20%-25%, in addition to providing the necessary financing, Reuters reported in September 19, citing unnamed sources, projects to be completed.

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Editing by Pete Sweeney and Thomas Shum

Our criteria: Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed under the Trust Principles to impartiality, independence, and freedom from bias.

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