Exclusive-Kaisa Overseas External Creditors Offer $2 Billion to Acquire Stalled Projects – Sources

Exclusive-Kaisa Overseas External Creditors Offer  Billion to Acquire Stalled Projects – Sources

Written by Claire Jim

HONG KONG (Reuters) – A group of overseas bondholders from cash-strapped Kaisa is offering up to $2 billion to take over the distressed housing projects of the Shenzhen-based developer to facilitate their completion, two people with direct knowledge of the matter said.

Acquisition talks are still in their early stages, according to the people, who declined to be named because they are not authorized to speak to the media about it.

If successful, it would be the first acquisition by a foreign investor of distressed residential assets of Chinese developers in the latest wave of crises to hit the real estate sector over the past year. It also comes as authorities struggle to contain a mortgage boycott by home buyers against stalled projects.

Kaisa Group, the second largest issuer of US dollar bonds among Chinese developers after China Evergrande Group, is in the process of restructuring its $12 billion foreign debt after defaulting on some bonds last year.

It is also struggling to pay off its debts at home and to utilize the capital to complete its projects.

The group of offshore bondholders, represented by financial advisory group Lazard (NYSE:) Ltd., has submitted an offer to acquire Kaisa’s stalled projects to developer advisor CITIC Securities, the people said.

They added that the group of overseas bondholders aims to provide up to $2 billion to purchase some non-performing loans from Kaisa’s lenders, linked to unfinished housing projects, at a discount of 20%-25% and to provide financing to complete the projects.

People said the terms offered by the group of external creditors are similar to those previously offered by Chinese asset managers when buying distressed assets to some developers in the country.

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Kaisa declined to comment. Lazard and Citic did not respond to a request for comment.

Since most of Kaisa’s projects are located in Tier 1 Chinese cities, where housing prices are relatively flexible, bondholders expect to reap profits after the stalled projects are completed, the two people said.

They added that they also offered to split profits with Kaisa after certain returns, while the additional cash recovered could help the developer’s business and operations, which would also be beneficial for its debt restructuring.

Financing Options

Evergrande and Keisa have been at the center of a crippling monetary pressure in China’s real estate sector, which accounts for a quarter of the economy and which has swung from crisis to crisis in the past year, disrupting global and domestic markets.

A string of developers, including Evergrande and Kaisa, have defaulted on billions of dollars of bond obligations since the second half of last year, forcing bondholders to go through lengthy and stressful debt restructurings.

It’s unclear how many stalled projects the bondholders’ group offer will cover, and a number that meet the group’s purchase criteria.

The group proposed, among other criteria, that the projects be located in first or second tier cities, have no off-balance sheet loans and possess presale authorization.

Aiming to help revive internal projects and move ahead with external restructuring talks, the group of bondholders also offered a 20% discount on Kaisa dollar bonds and an injection of equity capital, the two people and two other sources said.

Under the proposal, the two people familiar with the matter said Kisa would raise between $550 and $700 million by issuing new shares. They added that while this would dilute Chairman Kaisa Kwok Ying Shing’s stake in the company, there would be a provision for him to raise his stake again.

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To revitalize its projects and improve short-term liquidity, Kaisa said in April that it had entered into strategic cooperation agreements with China Merchants Shekou Industrial Zone Holdings and China Great Wall Asset Management.

A person close to Kaisa said at the time that agreements with state-owned companies were expected to help restore homebuyers and regulatory confidence in the embattled developer.

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