Scandal-rocked real estate developer Kaisa Group today announced that the Shenzhen government’s freeze on sales has been partially lifted at seven of the 11 projects that had previously been blocked by the authorities.
The ban on sales at Kaisa’s projects in the city during last December triggered its technical default on financial obligations, including payments on a $500 million bond early this year. The ensuring financial crisis rocked regional credit markets, and eventually led to the February sale of the company to rival developer Sunac Holdings.
The relaxation of the Shenzhen city government’s death grip on the developer’s cashflow comes as a city-backed enterprise currently steering Kaisa, together with Sunac, attempt to win concessions from creditors as part of Sunac’s buy-out scheme.
While the government has now partially lifted its sales ban, the projects in question are still frozen by court actions by creditors which will prevent the developer from fixing its revenue crisis until the legal action is resolved.
Sales Thaw a Show of Good Faith?
In an announcement to the Hong Kong stock exchange, Kaisa said that nearly 142,000 of the nearly 234,000 square metres of units at seven projects that had been blocked from sales in December had now been released, meaning that approximately 58 percent of the space in those developments is no longer subject to government restrictions.
An eighth project was released for rental purposes, and another three projects are presumably still frozen by the government.
The statement said that no official explanation was provided by the city government for the release of the properties. During the entire Kaisa controversy, no statement has been made by the local authorities regarding why the projects were blocked, although it is widely believed that restriction was based on accusations of corruption involving sale of the land used in the projects.
All of the unblocked properties remain subject to court action against the company filed by domestic creditors seeking repayment, all of whom are presumably now in negotiations with the company regarding restructuring of its $7.6 billion worth of onshore debts as part of the Sunac buyout agreement.
In the same announcement, Kaisa said that its assets are currently the subject of 70 applications to the local courts preventing the sale or liquidation of its assets without the resolution of the company’s debts. One property alone is said to be the subject of 24 court actions.
Takeover Parties Continue to Joust Over Restructuring
The removal of the government sales ban on Kaisa projects can be seen as a concession by a city government eager to seek a resolution to the debt restructuring talks that includes favorable terms for the shareholders in Kaisa.
Sunac, under the terms of the proposed buyout, would acquire 49.3 percent of the company from the family of former chairman Kwok Yingshing, while Shenzhen-based state-owned enterprise Sino Life Insurance is the second-largest shareholder with 29.96 percent of the company’s shares.
The current chairman and other board members of Kaisa come from Sino Life, and in a second announcement with the exchange today, Kaisa announced that it had just received a RMB 1.38 billion ($222 million) loan from a subsidiary of the giant insurer (at 12 percent annual interest).
In recent weeks Sunac and representatives of Kaisa’s creditors have engaged in a war of words involving intimations of potential financial doom if appropriate concessions are not provided. In late March, Sunac chairman Sun Hongbin declared that, “If creditors do not cooperate, the deal will not go through and we will surely give up,” according to an account in the South China Morning Post.
Sun’s comments came after offshore creditors rejected Kaisa’s proposal to cut coupon rates by as much as two-thirds, while extending bond maturities by five years.