Kaisa Confirms Default on Offshore Notes, Plans Restructuring of $11.8B in Debt

Embattled developer Kaisa Group Holdings on Monday acknowledged its failure to make payments on three sets of offshore senior notes and confirmed that it had engaged restructuring advisors to work with creditors on a plan for $11.8 billion in outstanding dollar bonds.

The company controlled by founder and chairman Kwok Ying-shing said in an announcement to the Hong Kong stock exchange that it missed principal and interest payments on a $400 million note that matured on 7 December with no grace period.

In November, Kaisa missed a $29,875,000 interest payment on notes due in 2023 and a $58,501,287 interest payment on notes due in 2025. The 30-day grace period for both sets expired with the interest still unpaid, while a grace period for a $17,475,000 interest payment on notes due in 2026 is still in effect after Kaisa missed an initial 1 December deadline.

The non-payments may lead to creditors demanding acceleration of repayment, said Shenzhen-based Kaisa — the first Chinese developer to default on offshore bonds back in 2015 — though the company “has not received any notice regarding acceleration action by holders of the senior notes”.

Evergrande’s Footsteps

Kaisa’s planned debt restructuring, to be advised by US-based Houlihan Lokey, comes after fellow troubled developer China Evergrande earlier this month set up a “risk management committee” featuring officials from the Guangdong provincial government and mainland state-owned enterprises in a bid to reorganise its own $20 billion offshore debt pile.

Houlihan Lokey, which had already been engaged by Kaisa’s compatriots at Fantasia Holdings in October, is best known for advising the creditors of Lehman Brothers in the Wall Street bank’s $600 billion bankruptcy case after its collapse in 2008.

A decaying business picture may have forced Kaisa’s hand, as the company said Monday that contracted sales fell sharply from about RMB 8.2 billion ($1.3 billion) in October to just over RMB 1 billion in November, compared with RMB 12.5 billion in November 2020.

“While the group continues to develop and sell properties in its ordinary course of business, the confidence of potential property purchasers remains dampened in December,” Kaisa said.

The developer also noted that it had applied for a resumption of trading of its Hong Kong-listed shares after a halt since 8 December. Trade resumed on Monday with shares falling more than 14 percent in price to HK$0.79 ($0.10).

Ultimate Debt Challenge

Two weeks ago, Bloomberg reported that Kaisa had received a formal forbearance proposal from a group of its bondholders. The creditor group is being advised by New York-based Lazard and had offered a deal that would inject cash into Kaisa and enable the developer to avoid a former default, according to Bloomberg’s sources.

The same bondholder consortium last week offered to buy $1 billion of Kaisa’s non-performing onshore loans as a way of injecting liquidity into the embattled developer and boosting their own hopes of recovering their investments, according to a report in the South China Morning Post.

Earlier this month, the SCMP reported that Kaisa had agreed to meet its offshore bondholders and discuss ways of repaying loans, including selling convertible bonds that could be exchanged for shares of Kaisa-controlled Sing Tao News Corporation.

The developer’s property management arm, Kaisa Prosperity Holdings, this month announced the resignation of executive director and vice chairwoman Kwok Hiu-ting, the daughter of Kwok Ying-shing and also co-CEO of Sing Tao News. That move followed the announcement by Kaisa Health Group Holdings that Kwok Hiu-ting’s two sisters, Kwok Ho Lai and Kwok Hiu Yan, had resigned from the board of the healthcare subsidiary of Kaisa Group, with both having been appointed to their executive director positions in mid-2021.

Reuters reported in October that Kaisa Group was shopping its 67.18 percent stake in Kaisa Prosperity in a bid to raise cash to meet its swelling debt commitments.