Kaisa to cut offshore bond coupons in second debt restructuring

SINGAPORE (Bloomberg) - Kaisa Group Holdings has asked offshore bondholders to accept at least a 29 per cent cut in coupon payments and defer repayment by five years, or face liquidation that may recover only 2.4 per cent of their money.

The developer, which fell into financial distress amid project blockages and a corruption probe, is trying to trim obligations on some 17 billion yuan (S$3.75 billion) of offshore debt. Kaisa earlier this month sought to reduce the interest on almost 48 billion yuan of onshore debt while seeking to extend the repayment by up to six years.

Foreign creditors will likely recover just 980 million yuan, or about 2.4 cents on the dollar, in a liquidation scenario, the company said in a Hong Kong stock exchange filing on Sunday. A substantial majority of onshore creditors will also face impairment, it said.

"It will be a major turn of events if investors don't agree to this," said Raymond Chia, the head of credit research for Asia excluding-Japan at Schroder Investment Management in Singapore. "It's definitely a bad sign in tainting the assumption of no defaults in the industry."

Kaisa narrowly avoided becoming the first Chinese real estate company to default on its U.S. currency debt after paying up a coupon on its 2020 bonds within a grace period last month. Several key executives quit late last year. Sunac China Holdings bought 49.3 per cent of Kaisa on Jan. 30, and made a takeover offer that's conditional upon a satisfactory debt restructuring.

Kaisa's US$250 million 12.875 per cent notes due 2017 slumped 4.3 cents to 53.3 cents on the dollar as of 10:30 a.m. in Hong Kong, Bloomberg-compiled prices showed, adding to a 10.7-cent tumble last week. Its US$500 million of 10.25 percent notes due 2020 slid 1.5 cents to 54 cents, having lost 4.2 cents last week.

In Sunday's announcement, Kaisa proposed to cut the coupon on its April 2016 notes to 3.1 per cent from 6.875 per cent and lower the interest on its 2017 debt to 4.7 per cent from 12.875 per cent. Under the proposal, the coupon on its March 2018 debentures will be reduced to 5.2 per cent from 8.875 per cent, while that on its June 2019 notes will be trimmed to 6.4 per cent from 9 per cent.

Kaisa also proposed to lower the rate on its January 2020 securities to 6.9 per cent from 10.25 per cent, and reduce the coupon on its December 2015 convertible bonds to 2.7 per cent from 8 perc ent. The developer retains the option to issue payment-in-kind notes to bondholders up to 2017, in lieu of coupon payments, it said.

"We would like to regard this proposal as the worst scenario in a successful restructuring process," Kenny Wu, a Hong Kong-based credit analyst at Citigroup, wrote in a March 8 report. "Cooperation between bondholders and the company is the key in the next two months, or probably the only execution risks for the deal."

Kaisa, which also owes HK$760 million ($98 million) in loans to HSBC Holdings and about US$179.5 million to Industrial & Commercial Bank of China (Asia) Ltd., is seeking to win consent to its restructuring plan by March 20.

It proposes to pay an extra 50 basis points of interest on the restructured debt as an incentive if more than half of the high-yield noteholders support the plan and more than 66 per cent of convertible bondholders approve the terms.

Frozen assets and litigation are disrupting its normal operations and affect the going-concern value of the company, Kaisa said in the filing. Deteriorating liquidity puts increasing stress on its business and weakens its capital structure, it said.

Last week, it sought 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, its March 2 filing showed.

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