Chinese developer Sunac scrapped yesterday a takeover offer for troubled smaller rival Kaisa, renewing investor uncertainty over Kaisa’s ability to repay almost $11bn in debt.
Reuters/Hong Kong
Chinese developer Sunac China Holdings scrapped yesterday a takeover offer for troubled smaller rival Kaisa Group Holdings, renewing investor uncertainty over Kaisa’s ability to repay almost $11bn in debt.
Sunac’s almost $600mn takeover proposal, made in February, was a financial lifeline for Kaisa, which became the first Chinese developer to default on an offshore coupon payment in April after the authorities imposed a sales blockade and several executives quit late last year.
The company owes some $2.5bn to overseas investors. Sunac had offered to repay Kaisa’s bondholders, but at a steep discount, and these creditors had opposed the takeover.
In the exchange filing, Sunac said both it and Kaisa had agreed to terminate the deal, as “certain conditions precedent have not been fulfilled” but gave no details.
Sunac and Kaisa officials declined to comment further.
Kaisa’s bonds traded slightly higher after the announcement. Some analysts said the scrapped deal may be an indication that Kaisa’s finances had improved after the authorities lifted the sales ban earlier this year and the company reinstated its founding chairman and key shareholder Kwok Ying Shing.
Kwok had reportedly offered to pay bondholders a better deal if they rejected the Sunac takeover.
“Sunac pulling out shows that politically things have moved slightly in favour of Kaisa, especially looking at recent developments around them winning auctions and able to buy land,” said a Hong Kong-based credit trader at an Asian bank.
“But in the longer term things are looking shaky for them as they can’t survive on their own and need another white knight,” the trader said, declining to be named as they were not authorised to speak to the media.
Kaisa has yet to report its 2014 results, and its shares have been halted since March 15. China Merchants Securities analyst John So said the company may eventually book a loss, which would mean a bigger haircut for bondholders.
Sunac’s shares, which were halted since May 15 pending an announcement related to Kaisa, resumed trading yesterday, with the stock falling over 7%. The broader market was down 2.4%.
Kaisa’s bonds maturing in March 2018, which had fallen to record lows of below 30 cents to the dollar in January, traded at more than 63 cents to the dollar yesterday, according to Thomson Reuters data.
