China developer Kaisa's bonds jump on loan waiver from HSBC

HONG KONG (Reuters) - Bonds issued by Kaisa Group rose sharply on Tuesday after the embattled Chinese property developer said it had received a waiver from HSBC on a loan it failed to repay late last month.

Kaisa, which is struggling with the sudden departure of senior executives, government officials blocking sales at some of its projects in the city of 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 U.S. 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 U.S. 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 President Xi Jinping's corruption crackdown.

Kaisa officials could not immediately 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. "Other sectors are affected by political risk but it seems to be particularly prevalent in property companies," he added.

Credit markets are pricing in a default by Kaisa on the coupon payment for its bonds due in 2020 as a foregone conclusion, which could in turn trigger the company to launch a restructuring.

Analysts said if a restructuring was done in an orderly manner with government support, then bondholders could get back as much as 70 cents for every dollar of debt they hold.

Kaisa said late on Monday that it was in the process of appointing new financial advisers.

It added that assets amounting to 651.2 million yuan 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 Dec. 31, had been terminated by mutual agreement.

Monday's announcement came after Kaisa said last week that it had failed to pay the US$26 million bond coupon on its bonds due 2020 and it was "currently assessing its financial position and will make further announcement regarding such interest payment".

The borrower has a 30-day grace period from the time the coupon was due on January 8.