Kaisa creditors offer forbearance to avoid bond default, sources say

Kaisa's debt woes have added to broader distress in China's troubled real estate sector recently. PHOTO: BLOOMBERG

LONDON (BLOOMBERG) - The Chinese developer that became the nation's first to default on US dollar bonds back in 2015 may have caught a break to avoid doing so again, at least for now.

A group of Kaisa Group Holdings noteholders sent the company a formal forbearance proposal on Monday evening (Dec 6) in Hong Kong, people familiar with the matter said.

Kaisa's debt woes have added to broader distress in China's troubled real estate sector recently. That is because it is the nation's third-largest issuer of dollar notes among developers, even as it ranks just 27th by property sales.

The plan could see Kaisa avoid a formal default on a US$400 million (S$547.7 million) dollar bond due on Tuesday, though uncertainty remains after it failed last week to win approval for a debt swap that would have extended the deadline.

More strains emerged this week, as state broadcaster CCTV reported that Kaisa is unable to deliver some residential projects to buyers and has failed to pay salaries to some workers in the southern city of Guangzhou.

The creditor group is being advised by New York-based advisory firm Lazard and holds Kaisa notes with a face value of about US$5 billion, according to the people, who asked not to be identified discussing the details. Talks include a so-called new money deal that would inject cash into Kaisa, the people said. Kaisa declined to comment.

China's property developers have been roiled by debt crises for months amid a government crackdown on excessive borrowing and a liquidity crunch at Asia's largest issuer of junk dollar bonds China Evergrande Group.

Fears of contagion prompted the authorities to take steps to contain the fallout. The latest support measures came on Monday, with the central bank releasing liquidity into the financial system via a cut in the reserve requirement ratio for most banks. The authorities also added to signs that they will ease real estate curbs, pledging to support the housing market to better meet "reasonable" needs.

Like Evergrande, Kaisa has been a frequent borrower in the offshore market in recent years and has some US$11.6 billion of dollar notes outstanding.

Defaults in China's real estate sector have eased since regulators told firms in late October to honor offshore debt obligations, following at least four failed payments earlier that month. Even so, the country's borrowers have defaulted on a record US$10.2 billion of offshore bonds in 2021, with real estate firms making up 36 per cent of that total, according to data compiled by Bloomberg.

Investors in Chinese dollar junk bonds are now bracing for a fresh bout of volatility after a tentative rebound, with Kaisa, Evergrande and China Aoyuan Group all indicating they may struggle to repay their near-term debt.

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