Chinese developer Kaisa reaches restructuring agreement

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Chinese developer Kaisa said on Tuesday it had reached a restructuring agreement with a key group of creditors as it seeks to avoid legal challenges that could lead to its liquidation in Hong Kong.

The company said in a stock market filing that it would issue $5 billion in bonds as part of the proposed restructuring. Investors would also receive $4.8 billion in convertible bonds.

Kaisa’s plan comes after it went into default in 2021, part of a wider reversal of fortunes for many developers who took advantage of China’s property boom before the sector collapsed three years ago.

The company was the largest borrower of offshore debt behind Evergrande, the developer at the center of a real estate cash crunch that has led to a series of other defaults and continues to weigh on the world’s second-largest economy.

Brock Silvers, chief investment officer of Hong Kong-based private equity group Kaiyuan Capital, said that while the plan was only a proposed agreement with a subset of creditors, it “still indicates real progress” and made a winding-up order from September to be “unlikely”.

Silvers added: “This would be a positive step for China’s troubled dollar bond market.”

More than 20 Chinese property developers have faced or are facing winding-up petitions in Hong Kong courts, where many of them have listed and issued bonds. Offshore Chinese real estate debt made up a large part of Asia’s high-yield bond market, but new issuance has dried up since the slowdown began.

Kaisa’s case, whose next hearing is on September 9, has been adjourned repeatedly in recent months, and a judge warned in June of delays.

Evergrande’s Hong Kong entity was ordered into liquidation earlier this year by a court in the territory after it failed to come up with a concrete restructuring plan despite repeated delays. But almost all of its assets are on the mainland, which operates under a different legal regime.

A Chinese restructuring specialist said a successful offshore restructuring deal for developers could help prevent a possible liquidation scenario in Hong Kong, as it would not be “realistic” for offshore creditors to recover a significant amount from the suit.

Kaisa became the first Chinese developer to default offshore in 2015, but recovered after restructuring, before rebounding again years later. This time, the litigant in question is Citi Bank, the trustee bank of its defaulted offshore bonds.

Sunac, another Chinese developer, successfully restructured its offshore debt late last year. Others, like Country Garden, have yet to reach an agreement.

China’s property slowdown has raised questions about the sector’s role in future growth as booming urbanization slows. Fitch Ratings, the rating agency, said on Tuesday that it expects housing demand in China to fall 20 percent to 800 square meters a year from 2024 to 2040, compared with demand in the decade to 2020.