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Kaisa creditors get organised; firm owes over $10bn

The struggling listed developer revealed that its total debt jumped $3 billion in the six months since its last interim financial report as it began restructuring discussions with creditors.

A group of Kaisa Group’s offshore creditors were set to discuss the impending restructuring today (18 February) on a call led by law firm Kirkland & Ellis, Bloomberg reported. On Monday (16 February), the Chinese real estate developer announced that its total debt stood at RMB65 billion ($10.4 billion; €9.14 billion) as of 31 December, almost double what creditors thought the company owed based on its interim 2014 financial report.

Kaisa had current borrowings totalling $3.2 billion, as of 30 June 2014, according to its interim 2014 financial report. The non-current portion of its debt, ranging from two and five years in duration, totalled $3.79 billion.

The developer has declined to explain the source of the extra debt revealed this week. Some analysts have speculated that the facilities were provided by the Chinese shadow banking sector and were structured as off-balance sheet items.

Total interest-bearing debts owed to onshore lenders totalled RMB47.97 billion at the end of December, of which RMB12.4 billion was lent by banks with the remaining RMB35.5 billion owed to non-banks. Offshore creditors were owed RMB17 billion.

The company’s problems came to light early this year when it missed a $23 million coupon payment on its $500 million 10.25 percent 2020 notes. The Hong Kong-listed developer paid the overdue coupon before the expiration of a mend period last week at the same time announcing that fellow Chinese real estate developer, Sunac China Holdings Limited had agreed to buy a 49.25 percent stake in the company. Sunac is also offering shareholders in the free float of the firm HK1.80 a share.

The completion of the takeover is dependent on a successful restructuring of Kaisa’s debt. To that end, the company has appointed Houlihan Lokey as advisor and held a meeting with onshore creditors on Monday. Kaisa said that it will alos engage with offshore bondholders and intends to reach an agreement with creditors by the end of March with completion scheduled for May.

The company’s debt pile became unmanageable after some of its construction agreements fell through and local authorities in China blocked the sale of properties in Shenzhen. Several of the firm’s board members, including its chairman, resigned at the time. Other resignations followed including that of its chief executive officer, Jin Zhigang.

Hong Kong-listed Sunac was founded by Sun Hongbin, who holds a 47.12 percent stake in the company. Sunac develops property projects in Beijing, Tianjin, Shanghai, Chongqing and Hangzhou.