Chinese real estate

Former defaulter Kaisa returns to the debt markets

The first Chinese property developer to default on its debt in 2015, Kaisa Group has regained credit ratings and is returning to the debt markets with a US dollar bond.
Shenzhen, China, where Kaisa is headquartered.
Shenzhen, China, where Kaisa is headquartered.

Kaisa Group, which defaulted on its debt a few years ago, has returned to the public markets with its first offshore bond accompanied by credit ratings since its debt restructuring in 2016.

The Hong Kong-listed firm has issued US dollar bonds from 2017 until April this year, but they were unaccompanied by updated credit ratings. Kaisa was the first Chinese property developer to default on its offshore debt when it failed to pay interest on two US dollar senior notes in 2015. The company suffered losses from 2014 to 2016 but turned profitable again in 2017 and 2018.

“The rating is an indicator that Kaisa is back to normal,” a financial executive told FinanceAsia.

On May 15, Kaisa received its first credit rating since its debt workout in 2016 with a B1 rating from Moody’s. The next day, S&P Global and Fitch Ratings both assigned the group a B rating. These speculative grade ratings indicate that Kaisa is currently able to service its debt but negative events have a high chance of tipping it into default.

Kaisa plans to issue US dollar fixed-rate senior notes with tenor of 3 years and 8 months at the end of the monh. The Regulation S bonds are callable from May 30, 2021 at 103%. Moody’s has assigned these notes a rating of B2, one notch below its issuer rating. Fitch is expected to rate the bonds at B.

Pricing may occur as early as Wednesday, with initial price guidance in the area of 11.75% and final price guidance at 11.625%. The recent dynamics of Kaisa’s previous US dollar bonds suggests that its latest bond will be well-received in the market.

In April, Kaisa issued a US$350 million 3-year callable bond at 11.25%. On Wednesday the bond's cash price rose 20.8 cents to $1.02 to yield 10.41%. 

Last December, Fantasia Holdings, another Hong Kong-listed property developer, issued a $300 million 3-year bond at 15%, the highest-ever coupon on an offshore bond for a Chinese firm. The bond’s yield was 12.28% on Wednesday, after its price rose by 18.6 cents to $105.82. Fantasia’s annual revenue is comparable to Kaisa in tens of billions of Renminbi. Fantasia has a speculative credit rating of B and B2 from S&P and Moody’s respectively.

In its 2018 annual report, Kaisa chairman Kwok Ying Shing said: “The group takes deleveraging as its first priority, and will continue to explore more channels for low-cost financing and improve its debt management.”

Kaisa will continue to step up collection of proceeds from property sales and strengthen capital management, Kwok said.


Kaisa has high leverage and weaker interest coverage than its peers, according to a recent S&P report. But its increasing scale, high-quality land bank replenishment from urban renewal projects, and likely deleveraging over the next 12 to 18 months temper these risks. “The stable outlook reflects our view that Kaisa will control its leverage over the next 12-18 months,” it said. 

In the first four months of this year, Kaisa’s revenue surged 69% to Rmb20.53 billion ($3 billion). Last year, its net profit dropped 16.3% to Rmb2.75 billion, while revenue grew 18% to Rmb38.7 billion. Its gearing ratio fell to 236% in 2018 from 300% the year before, while net debt decreased to Rmb85.84 billion from Rmb90 billion in 2017.

“Kaisa's liquidity is good,” said a Moody’s report.  

The company's cash holdings of Rmb22.3 billion at the end of 2018 could cover about 1.3 times its short-term debt as of the same date, while Kaisa's cash holdings and operating cashflow will be enough to cover its short-term debt and committed land payments over the next 12 to 18 months, Moody’s said.

It reckons that Kaisa has strong sales in the Guangdong-Hong Kong-Macao Bay Area and good-quality land banks in high-tier mainland Chinese cities like Shenzhen, where it is headquartered. The company's rating, however, is constrained by its moderate financial metrics, history of debt restructuring and share suspension, and high financing costs, the ratings agency added.

Kaisa’s shares were suspended for two years from March 2015 to March 2017.

Proceeds from Kaisa’s latest bond will be used to refinance debt.

BOC International, China Citic Bank International, Credit Suisse, Deutsche Bank and Haitong International are joint global coordinators, bookrunners and lead managers of Kaisa’s bond. Kaisa Securities and Nomura are also joint lead managers and bookrunners of this bond, while Founder Securities is also a joint lead manager.

¬ Haymarket Media Limited. All rights reserved.
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