The credit crisis surrounding troubled Chinese real estate developer Kaisa Group is expected to be resolved soon, as Sunac China is said to have reached a deal to acquire the company.
According to a report in Chinese business news site Caixin, Sunac, which last year failed to acquire Greentown Holdings, has reached an agreement with both Kaisa and the Shenzhen government to acquire a 49.3 percent stake in the developer.
The family of former Kaisa chairman Kwok Ying-shing still holds a 49.3 percent stake in the company, but has been locked in a political battle with the Shenzhen government since an official there with ties to Kaisa’s was ousted for corruption last year.
Kaisa needs to raise cash by February 9th to meet its obligations on a $500 million bond payment to avoid becoming the first Chinese real estate company to default on its overseas bonds.
Deal Could Resolve Political Crisis That Moved a Market
Caixin based its report on information from an unnamed senior officer from Sunac, who was said to indicate the deal had been approved by both Kaisa and the Shenzhen authorities.
If the market report is confirmed, the acquisition could also help Sunac to gain a major share of the Shenzhen residential market and enhance the company’s competitiveness in China’s increasingly risky real estate sector. Trading in shares of Sunac was halted on the Hong Kong stock exchange on Friday pending an announcement from the company.
While the deal could pave the way for a resolution of a credit crisis that has rocked China’s real estate industry since early December, Sunac also has made some overly optimistic statements regarding its deals in the past.
In late December, Sunac announced that it would be buying out Greentown’s shares of two joint ventures invested by the developers. However, Greentown later disputed Sunac’s claim, and the would-be acquisitions have not progressed since that time.
On Friday, a second local website, Yicai.com, reported that Shenzhen Overseas Chinese Town is likely to acquire some of Kaisa’s projects in Shenzhen.
Sunac Bidding to Gain Kaisa’s Bank of Sites
In seeking to buy out Kaisa, Sunac is pursuing a valuable prize, even in China’s current market slump. Both Shenzhen Chinese Overseas Town and China Vanke have been said to be interested in acquiring the Shenzhen-based developer, which still controls a land bank estimated by Citigroup to be worth RMB 63.5 billion ($10.16 billion).
That land bank, as well as a number of projects in progress, has been in limbo since Shenzhen authorities first froze sales at four of Kaisa’s projects in December, and the company subsequently defaulted on a number of debt obligations in January.
By acquiring Kaisa’s assets, Sunac, or another developer could gain significant advantages of scale in China’s increasingly competitive real estate sector.
Agreement Said to Be Signed
Local media reports indicate that Sunac has already signed an agreement with the Kwok family to purchase their shares, and now the two sides are simply waiting for approval from the Shenzhen government to announce that deal.
That approval is key to any acquisition succeeding, as the government’t good blessings will be necessary to unlock sales at Kaisa’s four frozen projects (which include a 973,000 square metre mixed-use development).
The Shenzhen authorities have had little to say regarding the reasons for freezing Kaisa’s projects, but it has become clear to observers that the government believes at least some of the Kaisa’s sites were acquired through its relationship with former official Jiang Zunyu, who was deposed for corruption last year.
As the sales lockdown has dragged on, it’s apparent that the government wants the Kwok family out of Kaisa, although it also has not filed charges against officers of the developer, or against the company itself.
Besides gaining approval from the Shenzhen authorities, any new owners of Kaisa will need to work out deals with the company’s creditors, many of whom have gone to the courts to freeze the developer’s assets.