Kaisa Could Face Wind-Up Petition Over Skipped Payments on $2.2B in Bonds

Chinese real estate developer Kaisa Holdings, which teetered on the edge of collapse earlier this year after failing to meet its debt obligations, could be threatened with insolvency again after repeatedly failing to make coupon payments on its bonds.

US law firm O’Melveny & Myers reportedly sent a written request to Kaisa Group on October 8th, repeating its demand that the Shenzhen-based developer make good on skipped coupon payments on bonds worth more than $2.5 billion.

O’Melveny & Myers, which is representing a group of Kaisa bondholders that includes a Singapore-based fund, is said to have made it clear that if the developer fails to meet its bond obligations to the group it could be hit with a wind-up petition through the courts.

Offshore Bondholders Still Waiting for Kaisa Payments

The October 8th letter is a follow-up on a notice sent on behalf of the bondholders to Kaisa on September 16th, according to an account in the finance industry publication Merger Market. The most recent communication from the bondholders’ lawyers makes it clear that the developer had not disputed its creditors demand for payment on the defaulted interest due within a 21-day deadline set out in the September notice.

While the latest letter did not set a timeline for Kaisa’s bondholders to take legal action, O’Melveny & Meyers is said to have made it clear that the group represents control of a large enough number of holders in Kaisa’s offshore bonds to accelerate legal action against the delinquent developer.

In addition to the group represented by O’Melveny & Meyers, at least four other large holders of Kaisa’s offshore bonds have formed an ad-hoc group to negotatiate with Kaisa through their advisors, Moelis & Co and Kirkland & Ellis, however, no progress has been reported to date.

Kaisa’s Kwok Keeps Bondholders Guessing

Bondholders were initially cheered by the return of Kaisa chairman Kwok Yingshing to the company’s helm in April after he had apparently been forced out by the Shenzhen government late last year. The tycoon’s return and the resumption of sales at Kaisa projects that had been frozen by the local authorities seemed to promise a return to normalcy for the once-thriving homebuilder.

However, political stability does not seem to have immediately led to financial solvency for Kaisa. The offshore bondholders are seeking to collect coupon payments of $52 million that Kaisa missed in March of this year.

During April of this year when Kaisa was attempting to negotiate a merger with Sunac Holdings to bail out the troubled company, it had attempted to renegotiate its debts with bondholders and other creditors.

At that time Kaisa had proposed new terms for its six outstanding offshore bonds which would stretch out the payment terms for each of them by five years, and lower the coupon rate by an average of more than 44 percent. However, the company’s proposal for revised terms was never accepted by its creditors.