China Property

Kaisa labels Farallon-led debt proposal as not ‘commercially viable’

PUBLISHED : Thursday, 21 January, 2016, 8:25am
UPDATED : Thursday, 21 January, 2016, 6:33pm

Debt-laden Kaisa Group, the first mainland Chinese developer to have defaulted on its offshore bonds, said an alternative restructuring proposal it received a week ago is not “commercially viable,” according to a statement.

The Shenzhen-based property developer said in a filing to Hong Kong’s stock exchange on Thursday, it had received a proposal from Farallon Capital Asia and BFAM Partners, who “unilaterally (without input from the company) publicly released the terms to various news sources the following day”.

It said the board was reviewing the alternative proposal with its financial and legal advisers, but was not in favour of it and continued to support the proposed restructuring it announced in November, since it would be “in the best interest of the company and all of its stakeholders”.

“Based on preliminary assessment of the terms, the board believes the alternative proposal will put undue pressure on the company to seek additional financing which is not commercially viable in the current environment,” it added.

BFAM and Farallon told South China Morning Post yesterday that, “we continue to believe that our alternative proposal represents the best way forward for all parties.”

Benjamin Fuchs, chief investment officer of BFAM Partners said the counterproposal was based on Kaisa’s current terms which would not introduce additional execution risk or complexity.

“Our proposed terms provide a better outcome for bondholders and we believe they will gain widespread support,” he said in a statement on Monday.

The fund together with other large bondholders of offshore debt issued by Kaisa met on January 14 and submitted a counter proposal to the troubled Shenzhen based property developer.

“We encourage bondholders not to sign the company’s restructuring support agreement. We recommend they join us in urging the company to amend its terms to reflect our proposal, which is more consistent with the underlying fundamentals of the business,” he said.

The bondholder group believes that the counter proposal provides a more comprehensive solution to improving Kaisa’s financial state and in the best interest of the company’s stakeholders, it said.

According to the counter proposal, it provides greater security and certainty of debt service for bondholders, who otherwise face greater risk as a result of limitations on access to available cash imposed by the ongoing “onshore” restructuring process.

In November, Kaisa’s board announced a non-binding restructuring deal for offshore bonds due in the next five years, with a lesser haircut than the one proposed by rival Sunac earlier. Sunac stepped away from a takeover deal in May.