Kaisa Seeks to Pay Less and Pay Slower in Talks with Creditors

Woeful and wobbly real estate developer Kaisa Group Holdings revealed its plans for restructuring nearly RMB 48 billion ($7.6 billion) in debts to domestic Chinese creditors today, as the company claws its way back from the brink of default.

The good news is that Kaisa intends to give creditors their money back, but the bad news is that it won’t be paying all of the interest that it promised, and the payback is going to take longer than originally agreed.

Kaisa had roiled regional markets and shaken faith in China’s real estate industry when it failed to make an interest payment due on a $500 million offshore bond in January.

Outlining a Repayment Plan

In a statement to the Hong Kong stock exchange Kaisa provided only a brief outline of its proposal for paying off some RMB 12.4 billion ($1.98 billion) owed to banks in China and another RMB 35.6 billion ($5.7 billion) owed to domestic non-bank lenders.

According to Kaisa:

The key terms of the Proposed Onshore Restructuring Plan are that there will not be any change in the securities and guarantee of the debt and there will not be a reduction of any creditor’s principal debt claim which will be paid in full over time to all creditors.

However, there will be a reduction of interest (which shall be not less than 70% of the base rate published by the People’s Bank of China) and an extension of tenor (in any event the remaining tenor shall not be less than three years and not more than six years, except if the remaining tenor of the original debt is more than six years, such tenor shall remain unchanged).

The announcement came after Kaisa held a meeting with its domestic creditors on March 2nd, although it made clear that no agreement had yet been reached between the parties involved.

The debt restructuring comes after the company had several of its existing projects shut down by government in Shenzhen following the detention on corruption charges of a local official involved in awarding Kaisa land use rights for the developments.

Restructuring of Kaisa’s debts is a condition for the acquisition of a 49.25 percent stake in the developer by rival Sunac Holdings.

Deal for Offshore Creditors Still on the Way

While Kaisa is working out a deal with its creditors within China, holders of the company’s offshore debts, including billions in high-yield bonds, will have to wait until the company has settled its issues within China.

In a statement to the stock exchange last month, Kaisa said that it had RMB 17 billion in offshore debts, on top of its RMB 48 billion in domestic debt. Out of these liabilities, it needs to pay back RMB 36.5 billion before the end of 2015.

With more than a million square metres of partially completed Shenzhen projects still frozen, Kaisa will need considerable help in meeting its 2014 obligations, and completing the acquisition by Sunac.