China developer Kaisa's bonds up on buyout reports

[HONG KONG] Chinese property company Kaisa Group saw its bond price bounce on Monday on optimism that a rival developer might take a stake in the embattled real estate firm.

Kaisa failed earlier this month to make a US$26 million interest payment on its bonds due to mature in 2020. It is now in a grace period, and has until Feb 9 to pay that coupon or else become the first Chinese real estate firm to default on its offshore debt.

Last week, a source told Reuters a number of developers have approached the company about possibly buying some of its holdings.

The chatter resumed on Monday after financial news website Tencent Finance reported that Sunac China Holdings, which last month terminated a deal to acquire a majority stake in developer Greentown China Holdings, is in talks to buy part of Kaisa.

The report said that Sunac carried out due diligence on Kaisa over the weekend.

Neither Sunac or Kaisa officials were available to comment on the report.

Kaisa were trading up by as much as 3.5 cents on the dollar across maturities by early afternoon on Monday after opening down by a similar amount.

Its bonds due 2017 are trading at 58/61 cents after opening at a low of 54/56.

Traders said that if Kaisa were to have a new controlling shareholder, then some bondholders might be able to take advantage of a "change of control" clause, which would mean the company would have to offer repurchase the bonds at a price equal to at least 101 per cent of their principal amount. "This is a company which has decent assets, so its not a usual China default where bond holders will get shoddy treatment," said a Singapore-based bond trader. "It is becoming clear that a buyout is being orchestrated and I don't think bondholders are getting a haircut." Still, some analysts are hesitant about the enforceability of bondholders claims, and said it may create unnecessary conflict with the company as it tries to restructure its debt. "Academically, you can exercise the put option but practically bondholders may not want to create more trouble which could impact any resolution. They may just want to keep the bond and keep the bond going," said a Hong Kong based analyst.

REUTERS