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Sunac chairman Sun Hongbin issues warning in a briefing that beleaguered developer Kaisa may go under if its creditors do not cooperate. Photo: Bloomberg

New | China's Kaisa will die soon if creditors "do not cooperate," Sunac warns

Mainland developer Sunac sees Kaisa going under if debt holders don’t agree restructuring deal

Mainland developer Sunac China said on Tuesday it does not have much room to back down from an initial failed debt restructuring proposal to keep troubled Kaisa Group afloat as the firm it is buying is in much worse shape than expected.

“If creditors do not cooperate, the deal will not go through and we will surely give up,” chairman Sun Hongbin said. “The possibility (of a successful deal) is diminishing as Kaisa is now in a much worse situation than we expected.”

Kaisa had total debts of over US$10 billion as of the end of last year. Sun said Sunac had spent almost HK$10 billion yuan on Kaisa, which could otherwise have not survived last month’s Lunar New Year festival.

“If you don’t think you bought the wrong bond and still regard it as a good company, you just wait for it to die,” Sun said.

Offshore creditors last Friday rejected a proposal to extend their high-yield bond maturity by five years and cut the coupon rate by up to 66 per cent.

Sun said offshore bond holders did not know the full information about Kaisa, while Sunac was barred by regulatory rules to communicate all to creditors.

“Negotiation is ok,” he said. “But it’s not my style to (be) involved in many rounds of talks.”

Kaisa failed two interest payments last week and was given a one month waiver. Because of that, S&P has downgraded the company’s long-term credit rating to D from SD.

"We do not anticipate the company will make the payment within the 30-day grace period, given its stressed liquidity," S&P said.

If Kaisa fails to pay the estimated US$52 million interest that was due March 18 and March 19 on its 2017 and 2018 notes, it would become the first Chinese real estate company to default on its US currency debt.

A near-default on its 2020 securities last month highlighted the relatively weak position of foreign investors when it comes to bankruptcies in Asia’s largest economy.

“It will surely not pay (in mid-April),” Sun said. “The company cannot even service its payroll now.”

He added Sunac had been trying to delay the legal cases which would push Kaisa to the brink of liquidation once they start. Kaisa said it was facing 80 pending legal cases with onshore creditors.

“Every project is used as collateral to multiple banks -- 24 in one extreme case. So 24 banks have applied to freeze the same project,” Sun said.

That means even if mainland authorities removed the sales ban, Kaisa’s projects would not be sold and generate cash flow, he said, adding he believes Shenzhen will lift the restriction after a successful acquisition by Sunac as Kaisa’s shareholder will have changed.

Sun saw a 50 per cent chance of success when proposing early last month a conditional purchase of a 49.3 per cent stake in Kaisa held by founding former chairman Kwok Ying-shing’s family trust. Kaisa is reportedly under investigation amid China’s anti-graft crackdown.

The developer has seen its cash flow evaporate quickly while debts have soared after Shenzhen’s government imposed a sales ban in early December.

 

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