Kaisa hammering out restructuring proposal for offshore debt

By Marisa Wong

Los Angeles, Oct. 17 – Kaisa Group Holdings Ltd. issued an update on Tuesday on the restructuring of its offshore debt.

The company said it has been working with its financial adviser, Houlihan Lokey (China) Ltd., and legal adviser, Sidley Austin, to assess its current financial and operational conditions with the goal of formulating a comprehensive plan that considers the rights of all stakeholders and unlocks the inherent value of the group’s business and assets as the onshore operating environment recovers over time.

The company has been communicating and engaging with some holders of the senior notes and other offshore debt issued by the group with an aggregate principal amount of about $12.3 billion and their financial adviser, PJT Partners, and legal adviser, Kirkland & Ellis, to work on a consensual and holistic restructuring proposal for the offshore debt.

These holders, who have formed an ad hoc group of offshore creditors, collectively hold or control more than 35% of the principal amount of the existing debt.

Over the past few months, the ad hoc group and their advisers have worked closely with the company and its advisers to conduct due diligence on the group’s financial and operational conditions. The company has therefore responded to a range of due diligence questions and provided various forms of supporting documents, files and evidence. The parties have exchanged some preliminary restructuring proposals, but no agreement has been reached to date, according to Tuesday’s notice.

Preliminary framework

Kaisa has proposed to the ad hoc group a preliminary indicative proposal with respect to its offshore debt. The preliminary proposal contemplated, among other things, the following:

• A deleveraging plan where the company converts some amount of the existing debt into shares of the company in order to achieve a sustainable capital structure;

• Exchanging residual existing debt into new dollar-denominated public notes; and

• Using net proceeds from the disposal of certain assets, including a list of urban redevelopment projects in the group’s project pipeline, as an additional source of funding for the repayment of new notes.

The company clarified that as of Oct. 17 it is still in negotiations with the ad hoc group, and no agreement on the terms of the restructuring has been entered into between the company and the ad hoc group.

The company noted that its proposal contained some features which the ad hoc group has indicated it is not prepared to support.

The company expects to continue the constructive dialogue and maintain a positive momentum with the ad hoc group, aiming to finalize the terms of the restructuring proposal as soon as practicable.

Preliminary principles

Kaisa said it is fully committed to the offshore restructuring and wanted to inform the market that the planned restructuring proposal will be based on the following guiding principles:

• Equitable treatment to all the creditors by respecting their existing legal rights and inter-creditor priority;

• Achievement of a long-term sustainable capital structure to mitigate business operational risks and unlock value for all stakeholders; and

• Enhancement of the group’s adaptiveness to the current market changes, so as to achieve sustainable operations and improve the post-restructuring trading performance of both the offshore debts and the shares of the company.

Debt overview

As of Dec. 31, 2022, Kaisa had onshore interest-bearing liabilities of about RMB 50.6 billion, of which RMB 36.3 billion is at the project level; and offshore interest-bearing liabilities of about $12.3 billion, which comprised roughly $11.5 billion outstanding principal amount of senior notes, about $200 million outstanding principal amount of perpetual capital securities and about $650 million of other secured and unsecured debt.

As of Dec. 31, 2022, the financial guarantees given by the group relating to the liabilities of its joint ventures and associates was about RMB 23.8 billion.

As of Dec. 31, 2022, the financial guarantees given by the company relating to the onshore liabilities of the company’s subsidiaries, joint ventures and associates was around RMB 21 billion.

Projected cash flow

Kaisa is projecting future cash flows as follows:

• Total cumulative attributable levered free cashflow generated from existing landbank development projects and urban renewal projects that are yet to be converted into the landbank, is expected to be roughly between RMB 75 billion and RMB 90 billion;

• Estimated net cashflow (after encumbered debt principal and interest payments) from investment properties and self-held assets are expected to be between about RMB 6 billion and RMB 7 billion;

• Other business segments including property management and hotel management are expected to generate net income in the range of RMB 1 billion to RMB 2 billion; and

• After servicing the principal repayment and interest payment of onshore debts as well as other financial guarantees, and before withholding tax, the cash available for offshore debt service is expected to be between around RMB 60 billion and RMB 75 billion.

The company underscored that, although there is no agreement on the terms of the restructuring between the company and the ad hoc group as of Tuesday’s announcement, both parties will continue talks in order to finalize the terms of the restructuring proposal as soon as practicable.

Kaisa Group is a Shenzhen, China-based property development company.

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