Sunac China plans to make an offer for all of Kaisa, having already agreed to buy a 49.3% stake in the troubled group from former chairman Kwok Ying Shin and his family members.
The developer, which last week looked set to buy the stake for HK$4.55 billion ($587 million), will make an offer for all of the shares at HK$1.80 per share, the companies said in a joint announcement on Friday.
Sunac’s move comes as Kaisa appeared to have made a coupon payment just ahead of a February 8 deadline, after missing the original payment date of January 8. This should further ease pressure on the group.
The stake sale had previously been made public through a shareholding disclosure filing but there were no further details.
Sunac's payment for the Kwok family's shares will be staggered. Sino Life, which has a 29.9% stake in Kaisa, will not accept an offer for its shares.
The Tianjin-based developer also plans to make an offer of HK$0.68 in cash for each HK$1 of convertible bonds outstanding. It is also offering to pay HK$0.30 for each outstanding Kaisa share option with an exercise price of HK$1.50 and HK$0.001 for options with an exercise price of HK$2 and above.
Sunac and Kaisa intend to maintain Kaisa’s listing status and ensure that not less than 25% of Kaisa’s shares are held by the public to comply with the listing rules, the companies said in a joint filing.
The offer and acquisition of the Kwok family's 49.3% stake is contingent upon a number of conditions being fulfilled, including ensuring that any debt defaults are resolved through consent or waivers by creditors and that there is no default under Kaisa’s existing debt.
An application has been made to resume trading in Sunac’s shares on January 9, the joint filing said. Meanwhile, Kaisa’s shares will remain suspended, pending further announcements.
Morgan Stanley is the financial adviser to Sunac. Kaisa will appoint an independent financial adviser to advise the Independent Board Committee on the terms of the offers.
Kaisa averts default
Kaisa has not yet made an announcement to the exchange to say if it has made payment for a missed coupon for its $500 million 2020 10.25% offshore bond.
However, according to a Reuters report, citing a notice to bondholders, Kaisa paid $25.6 million in interest that was due on January 8. The reported payment came just before the grace period expires on Saturday.
That said, there was confusion among investors on Friday. One private banker said to FinanceAsia she was told payment had been made but she had yet to see the funds.
In a stock exchange filing on Monday, Kaisa confirmed that it made the interest payment prior to February 7.
The entrance of Sunac as a white knight was seen by investors as coming with the blessing of the government, which was keen to placate homebuyers that had bought into Kaisa's projects.
Investors, while relieved, were concerned that it sent the message that all property developers would be saved.
“The Kaisa rescue sends the message to investors that you can invest in a Chinese property company and it’s bulletproof -- the government will bail it out if it runs into trouble, but that is a risky path to go down,” said one Singapore-based bond investor who declined to be named and who does not own the bonds.
“What I hope is that the market continues to differentiate among credits and doesn’t return to the go-go years of 2013, when any property company could tap the market,” he added.
Still the company is not out of the woods yet. Onshore creditors have frozen some of its mainland accounts and it is faced with upcoming bonds that mature. As of January 2015, Kaisa's outstanding offshore bonds amounted to $2.5 billion including renminbi convertible bonds.
However, it is in a better position, now that Sunac has entered as a backer, though the acquisition is expected to weaken the latter’s credit profile. “We see that the acquisition, if completed, is credit positive for Kaisa,” said Franco Leung, an analyst with Moody’s.
“It could improve repayment prospects for Kaisa's offshore creditors and alleviate creditors concerns. But for Sunac, it could weaken its financial profile as the transaction is sizable and highlights its acquisitive appetite," Leung added.
Chinese property bonds have gone through a volatile period and the flow of information has been murky. When Kaisa’s property sales were blocked, there were rumours that other companies, including Fantasia and China Overseas Land, were affected by the sales bans.
While the companies later clarified that their blockages were not due to government investigations and were more procedural in nature, their bonds dropped. Such volatilty has made it difficult for fund managers, which have seen sharp movements in bond prices, exacerbated by the low liquidity.
“All it takes is for a blogger in China to say that a company is being investigated, and its bonds fall,” the investor said. “We have seen very volatile trading in Chinese property bonds, and for institutional investors that have to mark to market on a daily basis, it’s difficult,” he added.