Cash-strapped Kaisa Group is the latest mainland developer to offload assets in a scramble to repay debts, as the Shenzhen builder has now agreed to sell its half stake in a once-prized residential site on Hong Kong’s former Kai Tak airport runway in a deal which values the property at HK$7.9 billion.
Kaisa is selling the 104,496 square foot (9,708 square metre) site to a joint venture between local giant New World Development and Hong Kong-listed Far East Consortium less than a year and a half after having acquired the plot from another indebted Chinese developer, Goldin Financial Holdings, for HK$7.04 billion.
After having earlier extended loans to Kaisa, New World and FEC are taking advantage of Kaisa’s desperate straits to purchase New Kowloon Inland Lot No. 6591 through a 50-50 joint venture with an eye toward boosting their land banks as Hong Kong home prices stretch to new heights.
Kaisa’s agreement to sell its Kai Tak prize was announced just two days after media reports indicated the Shenzhen firm is selling a residential site in the New Territories for HK$3.78 billion and the same day that the developer offered a premium to holders of $400 million of its bonds due next month to accept new notes due in 2023.
With a maximum gross floor area of 574,728 square feet, the plot is designated for private residential purposes, and was valued at HK$9.78 billion as of 30 June. At the stated consideration, FEC and New World would be paying about HK$13,829 per square foot to acquire the site once the sale is complete.
Upon completion of the development, the total estimated value of the project would be about HK$14.37 billion, according to Vincent Cheung, managing director at Vincorn Consulting. In the case that the average home sizes measure to 500 square feet each, the site would accommodate 1,149 units once completed, he added.
In February of this year, a neighbouring residential site, New Kowloon Inland Lot No. 6604, was acquired by the city’s second-largest developer by market capitalization CK Asset for HK$10.28 billion.
About two months before that acquisition, mainland developer China Overseas Land & Investment bested nine other rivals to win a waterfront residential site in Kai Tak for a price of HK$4.27 billion.
Departure From Kai Tak
Of the total consideration for the Kowloon East-facing site, the joint venture will be paying HK$1.89 billion in compensation, and assuming another HK$6 billion in loans. FEC’s statement to the exchange revealed that, together with New World it had already loans more than HK$3 billion to Kaisa last year, with another HK$1.2 billion loan arranged as part of the sale. The disposition of the remaining 50 percent ownership in the Kai Tak project, which is held by mainland tycoon Chen Zhuangrong, was not specified in FEC’s statement.
The transaction announced today marks the second time that the site on the former Kai Tak landing strip is changing hands at a discount with the sale consideration representing a mark down of about HK$1.8 billion from the assets its June valuation. When Kaisa acquired the site in May of last year from Goldin it had agreed to pay HK$2.6 billion less than the Pan Sutong-led company had paid for the site in 2018.
“For a total consideration of HK$7.9 billion, the price is very fair for us,” Far East Consortium’s managing director Chris Hoong Cheong Thard told Mingtiandi. “We will discuss loan restructuring with the vendor’s debtors later.”
Kaisa has stepped up its efforts to meet overdue credit obligations in this month as pressure builds to pay down debt. Just last week credit ratings giant Fitch had downgraded the developer’s long-term foreign-currency issuer default rating from CCC- to C due in part to its likely inability to pay bond interest.
Yesterday Kaisa confirmed for the first time that it had failed to pay $88 million in interest due on offshore bonds on 11 and 12 November, with the $1.5 billion in notes allowing for a 30-day grace period before formal default kicks in.
Earlier this month, the Shenzhen-based developer put 18 projects spanning 15.6 million square feet up for sale in its home city for RMB 81.8 billion ($12.8 billion), according to Bloomberg.
The developer also planned to sell its 67.18 percent stake in its property management unit, Kaisa Prosperity Holdings in October, Reuters reported.