Kaisa gets proposal from Farallon, but prefers own restructuring plan

By Caroline Salls

Pittsburgh, Nov. 20 – Kaisa Group Holdings Ltd. received a non-binding draft term sheet from Farallon Capital Asia Pte. Ltd., according to a news release.

Kaisa said none of its directors have met with or engaged in dialog with Farallon to date on the preliminary non-binding proposal.

Proposal terms

The terms of the Farallon proposal include the following:

• A consortium of investors led by Farallon intends to inject $150 million into the company in exchange for new shares representing 75% of the share capital of Kaisa. The company said the proposal does not identify the consortium;

• Existing Kaisa shareholders would receive a share of $5 million in cash and warrants exercisable at HK$0.07 per share with an exercise period of 12 months. Assuming full exercise of the warrants and the injection of roughly $510 million into the company, Farallon said existing shareholders would hold 80% of the company’s share capital;

• Existing high-yield notes would be exchanged into four new tranches of notes maturing in 2017, 2019, 2020 and 2021, including $117 million of 3% PIK notes due Dec. 21, 2017; $585 million of notes due Dec. 21, 2019 with an 8% PIK coupon and 1˝% cash coupon up to Dec. 21, 2017 and a 9˝% cash coupon thereafter; $702 million of notes due Dec. 21, 2020 with a 9˝% PIK and 2% cash coupon up to Dec. 21, 2017 and an 11˝% cash coupon thereafter; and $936 million of notes due Dec. 21, 2021 with a 10% PIK and 2˝% cash coupon up to Dec. 21 2017 and a 12˝% cash coupon thereafter;

• Convertible bonds will be exchanged for RMB 1.56 billion of new 2019 convertible bonds due Dec. 21, 2019. The new convertible bonds would have a 6.5% PIK and 2% cash coupon up to Dec. 21, 2017 and 8.25% cash coupon thereafter; and

• The net cash proceeds from the equity injection, after payment of the dividend to existing shareholders, will be deposited into an offshore bank account and held as restricted cash for at least two years following the closing. This cash will only be used for interest payments of the new high-yield notes and convertible bonds.

Kaisa’s directors said the proposal is conditioned on completion of due diligence, negotiation of definitive documentation, entry into restructuring support agreements, shareholder and regulatory approval and implementation of a capital reorganization followed by a consolidation of outstanding shares through a reverse split to reduce the impact of the proposed transaction on the outstanding share count.

Directors respond

The directors said these conditions are all likely to cause significant delay and distract from the substantial efforts being made to progress Kaisa’s previously announced restructuring.

In addition, the directors said the Farallon proposal contains a number of commercial provisions that are not consistent with the goal of maximizing value for stakeholders, including the issuance of equity at an implied pre-money valuation of HK$387.5 million, which is a 95% discount to the total market capitalization of Kaisa immediately preceding the suspension of trading on March 31, and a condensed maturity profile on the new senior notes that is not supported by the company’s projected cash flows.

As a result, the directors said the company’s proposed restructuring offers a superior benefit to existing stakeholders. Kaisa said it intends to finalize documentation and move forward with its proposed restructuring.

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

© 2015 Prospect News.
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