Sunac China buys 49.3% Kaisa stake for $587m

The deal provides troubled Kaisa with much-needed financial clout but could yet trigger a change-of-control clause in its offshore bonds.

Tianjin-headquartered Sunac China has bought a 49.3% stake in default-threatened Kaisa Group for HK$4.55 billion ($587 million), according to a Hong Kong stock exchange filing on Thursday.

The shares in the troubled property developer were bought at HK$1.80 per share, a 13.2% premium to the last traded price of HK$1.59. The seller isn't mentioned in the filing but is thought to be founder and former Kaisa chairman Kwok Ying Shing, who held a 49.3% stake in January. Kaisa’s second-largest shareholder is Fude Sino Life Insurance, which held a 29.9% stake.

Analysts view confirmation of the deal as a positive development, with Kaisa’s bonds already rallying on earlier comments by Sunac chairman Sun Hongbin that he would buy the stake.

However, there are still questions to be answered about how Kaisa will resolve its debt problems.

“There are still some unknowns but, for the most part, Sunac's acquisition of the stake is a positive for Kaisa," Christopher Yip, an analyst at ratings firm Standard & Poor's, told FinanceAsia

"Kaisa still has to work out how to handle the repayment to bondholders and the sales restrictions in Shenzhen,” he said.

Kaisa’s problems started last year when the Shenzhen government banned sales of its projects, with some analysts linking it to an anti-corruption campaign.

The Shenzhen-based developer defaulted early this year on an HSBC loan but subsequently got a waiver. A few days later it missed a $23 million coupon payment due on its $500 million 2020 10.25% offshore bond. The company's 30-day grace period ends on February 7.

Kaisa could also face redemptions by offshore bondholders if there is a change in control. Under Hong Kong's takeover code the ownership threshold that can trigger a general offer is 30%, which indicates that Sunac China would likely have to make a general offer for Kaisa.

In a report dated January 28, S&P warned that a complete takeover may trigger the change-of-control clause in Kaisa's offshore bonds, which means Kaisa would have to repurchase the bonds at 101% of their principal amount.

In addition, Kaisa has other looming debt repayments to make. The Shenzhen developer has an estimated Rmb5 billion ($801 million) worth of short-term onshore and offshore loans due in the first half of 2015. In addition, there are two more offshore bond coupon payments due in March for its $800 million 8.875% notes maturing in 2018 and its $250 million 12.875% notes maturing in 2017.

As of January 2015, Kaisa's outstanding offshore bonds amounted to $2.5 billion including renminbi-denominated convertible bonds.

Southern comfort for Sunac

The acquisition of the stake in Kaisa will enable luxury developer Sunac to expand southward from its northern Chinese base of Tianjin.

Kaisa had a total land bank of about 23.6 million square metres in gross floor area as at end June, including plots in the Pearl River and Yangtze River Deltas.

“Sunac traditionally has a stronghold in northern China, while Kaisa has a strong presence in the south, and its assets in Shenzhen are quite appealing to someone who wants to diversify," Yip said.

Kaisa earlier this week also sold its prime Shanghai property projects to Sunac China for Rmb2.3 billion ($369 million).  

The stake sale gives Kaisa a backer with financial resources. Sunac is rated BB- by S&P and as of June had unrestricted cash of Rmb20.6 billion ($3.3 billion)

However, questions have been raised about Sunac chairman Sun, who was jailed in 1992 on a conviction of misappropriation of funds. He was later granted remission of sentence and released on March 1994. In 2003, the conviction was overturned following an appeal by Sun. 

The luxury developer aborted a US dollar bond launch back in 2011 following a messy roadshow process. 

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