Bouncing bonds

Kwok to sell control of Kaisa

Kenny Chan, chief financial officer of Times Property, a developer based in Guangzhou, told a roomful of investors recently that he might start carrying a GPS device round the clock. That way, they could track his every movement. And if he suddenly disappeared into an interrogation room, they would be the first to know.

It may have been a joke, but for many Chinese developers it is also uncomfortably close to reality.

Back in November, the chairman of Agile Property went missing until it was revealed that he had been placed under some sort of house arrest (he resurfaced in December).

In the same month another developer called Kwok Ying-shing also left the public eye, shortly before announcing his resignation as Kaisa’s chairman late last year (Kwok was believed to have decamped to the Hong Kong Four Seasons Hotel, see WiC263).

This week Kaisa’s chief executive has also jumped ship. Jin Zhigang has resigned “to devote more time for his personal career”, the Shenzhen-based company said in a statement. It was not immediately clear who would be replacing him.

Jin’s departure came less than two months after the resignation of Kaisa’s chief financial officer, as well as a third board member at the firm (they are alleged to have ties to a Shenzhen official who is being investigated for graft). With the chief executive now gone too, Southern Metropolis Daily says company employees are looking for opportunities elsewhere.

Kaisa’s difficulties began to surface in October when the Shenzhen authorities blocked sales of its real estate projects for still-unexplained reasons. It has since been struggling to meet its debt obligations, with its bonds plunging to a low of 27 cents on the dollar in early January (its stock in Hong Kong has been suspended from trading since December).

Investors were concerned that it could become the first listed Chinese property firm to collapse.

The troubles at Kaisa have rippled through the wider sector, hitting smaller, privately-owned companies hardest. Bond prices for a number of developers — especially those based in Shenzhen – have fallen, with investors worried that the graft investigation could widen.

But could the worst be over? Recent news seems to suggest that the sector’s fortunes may be looking up. Just last week, Beijing-based developer Sino-Ocean raised $1.2 billion by selling two tranches of five-year and seven-year bonds. This week Shimao Property also came up with an $800 million seven-year debt issuance. Analysts say the successful bond sales are a positive sign that investor sentiment is improving.

Meanwhile, the fortunes of Kaisa have taken another turn over the last week, with the Nanjing-based property developer Sunac China saying it will spend Rmb2.4 billion ($385 million) to acquire four Shanghai projects from its debt-ridden counterpart.

This sale may have provided Kaisa with the cash that it needs to pay off a $26 million interest payment that it failed to make on a $500 million bond due in early January. (The developer is already technically in default on the bond, but has a grace period to meet the obligation, expiring at the end of this week.)

Kaisa’s bond prices are still volatile, with investors initially disappointed that a full-blown rescue hadn’t been agreed. The uncertainty saw Kaisa’s bonds fall from 88 to about 58 cents on the dollar.

So there was some relief when Sunac finally reached a bailout agreement with Kaisa this week (the bonds bounced back to 75). On Thursday Sunac disclosed it will acquire a 49% stake in Kaisa from its controlling family (the Kwoks) for $587 million. That is actually a premium to the $520 million valuation the stake carried when Kaisa’s stock last traded.

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