It remains to be seen whether Kaisa can extend its credit bonds. If it can overcome this hurdle, the road ahead may be brighter.
Viewpoint Real Estate Network Recently, Kaisa, a real estate company in Shenzhen facing liquidity problems, is busy actively helping itself. First, it announced that it had implemented repayment measures for wealth management products with a principal amount of approximately RMB 1.0968 billion, and then urgently disposed of 2 plots of land in Hong Kong.
On the evening of November 25, Kaisa announced its plan to extend the US dollar debt, which indicated that Guo had already faced a relatively severe risk of debt default. The wealth management products and the redemption of private equity funds that have recently occurred in Kaisa are more of the category of non-standard assets, and now it needs to remove the “thunder” buried in credit bonds at the same time.
Prior to this, Kaisa failed to redeem the interest of USD 58.501 million and USD 29.875 million of USD notes maturing in 2023 and 2025 respectively. They are in the 30-day grace period, and the maturities will be December 11 and December 12, respectively. day. It is reported that relevant creditors have sought professional advice from investment banks and law firms in this regard.
Kaisa USD debt rollover
Kaisa’s latest rollover is the 6.5%% senior notes maturing on December 7, 2021, with a total principal amount of US$400 million. As of the announcement date, the outstanding principal amount under the existing notes is US$400 million, and it is planned to conduct exchange offers and solicit consent.
According to the announcement, the conditions of exchange and agreed consideration provided by Kaisa are: 25.00 USD for every USD 1,000 principal amount, that is, 2.5% cash repayment; USD-denominated senior notes due in 2023 with a total principal amount of USD 1,000, exchange of old and new notes in equal amounts; And capitalized interest.
The new notes will mature on June 6, 2023 and still bear interest at an annual interest rate of 6.5%, which will be paid in cash, or if Kaisa chooses any interest payment date other than the maturity date to pay the relevant interest in kind, then The interest is calculated at an annual interest rate of 7.5% and paid at the end of each half year.
In fact, in the past two days, REDD has quoted people familiar with the matter as saying that Kaisa plans to extend the $400 million maturity bill for one and a half years, and may not include advance cash payments or additional credit enhancements.
Viewpoint Real Estate New Media understands that when high-yield bonds issued overseas are facing pressure on maturity, they can generally adopt such solutions as consent solicitation, exchange of offers, and agreement arrangements. Agreement arrangements are mostly used for debt restructuring. Exchange offers and consent solicitation appear before debt restructuring; among them, exchange offers usually require 100% investor consent, and consent solicitation generally requires 100% agreement on major terms.
In October of this year, Xinyuan Real Estate and Helenberg both launched exchange offer plans for US dollar bonds that are about to expire. Modern Real Estate has announced that it will adopt a consent solicitation method for the US$250 million senior notes due on October 25.
For Kaisa, it currently pays 2.5% of the cash issued by investors, and the new bills continue to use the original interest rate and other conditions, which are no different from common practices, but at least US$380 million in exchange (equivalent to 95% acceptance rate) needs to be accepted. . In other words, during the solicitation period on November 25 and December 2, if the final acceptance rate is less than 95%, the exchange offer and consent solicitation will automatically fail.
Looking at the entire rollover plan, Kaisa, whose liquidity is under pressure, has been unable to provide cash compensation conditions such as increased coupons. However, compared with this point, not supplementing credit enhancement measures may be the real issue that affects changes in the situation.
In order to improve the credit rating when financing, enterprises will provide corresponding credit enhancement measures. The common way is to provide a guarantee through the guarantor, which covers the bond principal, interest, liquidated damages, damages, etc., and all the costs of realizing the creditor’s rights and other expenses that should be paid. Moreover, this mostly occurs among issuers with relatively weak credit status.
The butterfly effect of debt default
Among the mainland real estate companies seeking debt rollover this year, Guorui Real Estate made an exchange offer and agreed to solicit 13.5% of the senior notes due in 2022 in early January. It was clear that the existing notes are not secured, but the new notes will be collateralized. guarantee. The specific guarantee methods include charging all the share capital held by Langfang Guoxing and Qidong Guorui Real Estate, and providing personal guarantees by the controlling shareholders.
Another case is Sunshine City, which is also facing liquidity pressure recently. It requested the consent for the revision of its eight US dollar debt contracts and the exchange offer of three US dollar bonds. The controller Lin Tengjiao provided personal guarantee.
The interest rate of the new bills issued by Sunshine City for the three U.S. dollar bonds of the exchange offer was as high as 10.25%, but the agreement rate was only 87.98%, 87.66%, and 92.41% respectively after the deadline was extended, which was not far from the minimum threshold of 85%. Far.
This is also the butterfly effect brought about by debt default. Once the issuer has the fact or potential risk of non-standard/credit debt default, the subsequent refinancing ability will be affected. The bond market, bank credit and other channels will be severely restricted, and the risk will eventually A wide range of conduction.
But investors may also be in dire straits: If the debt extension is not accepted, the company will face the risk of bankruptcy and liquidation, and the liquidation order of foreign debt is after domestic debt; coupled with insufficient collateral and guarantee for foreign debt, the debt recovery rate is also low. Less than domestic debt. When Kaisa faced another crisis six years ago, overseas creditors were already deeply moved by it.
A Hong Kong capital market person described to the new media of View Real Estate that investors in overseas US dollar debt are now “the meat on the cutting board” and do not have many choices.
The background of Kaisa’s current predicament is also mentioned in the announcement.
The announcement shows that in the second half of the year, real estate developers and the capital market that provided funds for the growth and development of the industry experienced an inflection point. As far as Kaisa is concerned, Moody’s, Standard & Poor’s, and Fitch successively downgraded the company’s rating to C level, and subsequently withdrew the rating at the company’s request. However, this has increased the difficulty for Kaisa to obtain financing, and the current short-term liquidity problems have led to a number of trigger events under several loan agreements.
Despite the emphasis on “short-term liquidity issues,” Kaisa faces severe challenges. Previously, Standard & Poor’s predicted that Kaisa’s US$3.2 billion will expire within the next year, and there are major risks in refinancing.
Kaisa has recently started mine clearance, including the previous sale of the homestead on Castle Peak Road in Tuen Mun, Hong Kong. The receiver is Cai Zhiming, the “toy king” who has cooperated many times. It is reported that it may return 1.3 billion Hong Kong dollars; on November 22, it announced the Jinheng wealth redemption plan. The plan is to be redeemed in installments in the order of maturity.
On November 24, Far East Development and New World Group acquired Fast Fu International, in which Kaisa holds a 50% stake, to obtain a homestead in Kai Tak, Hong Kong. The land is the once sensational Goldin Kai Tak homestead. After deducting the corresponding outstanding principal and the consideration for the sale price, Fast Wealth International has cashed out 3.664 billion Hong Kong dollars, and Kaisa has returned more than 1.8 billion Hong Kong dollars in response.
It remains to be seen whether Kaisa can extend its credit bonds. If it can overcome this hurdle, the road ahead may be brighter.