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Kaisa bondholders reject company offer aimed at avoiding default

Offshore bondholders in Chinese property developer Kaisa have rejected an offer by the ailing group to extend the maturity of its debt and avoid a messy default next week, according to a letter to the company’s chair seen by the Financial Times.

The move could deepen a crisis at Kaisa, one of China’s most indebted developers, which has launched a fire sale of its assets in a bid to meet liabilities that include about $3bn of dollar-denominated bonds that will come due in the next 12 months.

A group claiming to represent more than 50 per cent of the investors in some of Kaisa’s most pressing debt — a $400m bond that will mature on December 7 — wrote to Kaisa on Tuesday to say that a proposal it made late last month to exchange the bonds was “unacceptable”, according to the letter.

The offer, which was proposed by Kaisa on November 25, would swap the bonds for new notes maturing in June 2023 but required the approval of 95 per cent of bondholders.

Kaisa warned in a stock exchange filing that if the offer failed, it might not be able to repay the bonds and could consider a debt restructuring.

The group of bondholders also proposed a forbearance period — the temporary postponement of loan payments — in order to “provide breathing room” for Kaisa and assuage market concerns about the implications of a potential default.

The bondholders included big investors such as Pimco and Ashmore, according to a person close to the matter.

Ashmore declined to comment. Pimco did not respond to a request for comment.

Kaisa is the latest Chinese property developer to be caught in a sector-wide liquidity crisis that has engulfed its peer Evergrande, the world’s most heavily indebted real estate group.

Kaisa rushed to raise cash from asset sales in Shenzhen, mainland China’s most expensive residential property market, and Hong Kong in November after it missed payments on wealth management products it guaranteed, deepening concerns about its ability to meet its financial obligations.

Kaisa’s dollar bond maturing on December 7 is trading at about 45 cents to the dollar, down by half since mid-September, when the company’s debt was still trading at near-face value. Its Hong Kong-listed shares have dropped almost three-quarters this year.

“The group believes that the terms of the exchange offer are unacceptable and illustrate an unwillingness on the part of the company to consider more appropriate and holistic ways to address Kaisa’s current short-term liquidity challenges,” the letter from the group of investors said.

The group, which has hired financial advisory firm Lazard to represent it, has made an offer to provide new financing to Kaisa. “These new money proposals have broad support among the company’s offshore bond investor base,” the letter said.

Kaisa did not respond to a request for comment.

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