Real Estate

Kaisa: woes mean rare opportunity for Hong Kong developers

Early this year Chinese property developer Kaisa grabbed headlines for its high-profile purchases in Hong Kong. Those included a controlling stake in Hong Kong newspaper Sing Tao News and some high-end properties in the city. Kaisa now has a different reputation, as a distressed seller. Good news for other Hong Kong developers.

Kaisa needs to restructure. But bondholders have not jumped to accept the company’s offer to exchange $400m worth of its dollar notes maturing next week for new ones due 18 months later.

The property developer has about $12bn in dollar debt outstanding. It claims it may not be able to repay bonds without acceptance of its debt exchange. But too many local developers have asked for more time on repayments in recent months, causing investor fatigue.

Shares of Kaisa, down three-quarters in the past year, are unlikely to bounce back quickly. Steep pricing discounts on its asset sales will continue. Thus, proceeds are unlikely to cover bonds coming due in the next year, nearly $3bn in dollar bonds alone.

Its travails will knock other Chinese high-yield dollar bonds, as well as property prices in Hong Kong and Shenzhen, homes to its asset portfolio. Shares of Hong Kong developers have collapsed this year reflecting concerns of a Chinese debt crisis spillover to the city. There home prices fell for the second straight month in October. Shares of New World Development, one of the acquirers of Kaisa assets, are down a fifth in the past year.

Even so, fire sales of land by cash-strapped Chinese developers catch the eye. Last week, Kaisa priced its sale of a rare residential plot in Kai Tak, the harbour-front site of the former airport, to Hong Kong peers at a 20 per cent discount to its audited value of $1.2bn.

Such value is almost unheard of in the city’s ultra-competitive property market. These deals will offer opportunities for Hong Kong developers struggling with falling margins from high costs of land and construction.

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