24 March 2019
Many property developers in major Chinese cities are reeling from a prolonged slump in the market. Photo: Bloomberg
Many property developers in major Chinese cities are reeling from a prolonged slump in the market. Photo: Bloomberg

Shenzhen govt holds talks with potential Kaisa investors

The Shenzhen government is holding talks with several property developers to orchestrate investments in troubled real estate firm Kaisa Group Holdings Ltd. (01638.HK), Bloomberg News reported, citing unnamed sources.

Kaisa is under probe over alleged links to Jiang Zunyu, the former security chief of the southern Chinese city who was taken into custody in a graft investigation. The company failed to make a US$23 million coupon payment, due Jan. 8, on its US$500 million of 2020 dollar bonds, putting it at risk of becoming the first mainland developer to default on US currency debt.

“If this news turns out to be true, it could be a potential white knight scenario,” Yin Chin Cheong, a Singapore-based credit analyst at independent research firm CreditSights Inc., was quoted as saying. “But it could also be a path to start the restructuring of Kaisa’s onshore and offshore debt.”

Several of Kaisa’s projects in Shenzhen were blocked last month. Its chairman, Kwok Ying Shing, and several other key officials have quit.

Kaisa is 49.25 percent owned by Good Health Investments Ltd., according to data compiled by Bloomberg. Good Health Investments is controlled by the Kwok family, according to the prospectus.

The other main shareholder of the group is Sino Life Insurance Co. and its unit Fund Resources Investment Holding Co., which hold a combined stake of 29.94 percent.

The remaining about 20.8 percent is held by minority offshore shareholders.

The 2020 notes’ covenants require that before an event of default can be formally called, bondholders holding 25 percent of the dollar debentures must instruct the bonds’ trustee to declare it so, the news agency said. Noteholders can also form an ad hoc committee, hire advisers and/or declare a debt moratorium to negotiate a repayment. Kaisa has a 30-day grace period to make its coupon payment.

Moelis & Co. is in talks with several Kaisa noteholders, while law firm Kirkland & Ellis LLP is representing holders of its convertible debentures. Kaisa has hired Sidley Austin LLP to advise on debt restructuring.

A number of claims onshore have already been made over Kaisa’s assets.

Dalian Intermediate People’s Court, in China’s northeast Liaoning province, froze 540 million yuan (US$87 million) of deposits on Jan. 12 as part of lawsuit filed by Industrial & Commercial Bank of China Ltd. The same court ordered 100 million yuan be stopped on Jan. 9 as part of lawsuit brought by China Everbright Bank Co., the sources said.

Representatives of the Shenzhen government and Kaisa’s press office refused to comment.

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