Kaisa Bonds Extend Rebound Amid Shenzhen-Led Takeover Plans

Bonds of Kaisa Group Holdings Ltd. (1638) rallied for a fourth day on speculation the local government is seeking buyers for the homebuilder after it missed a coupon payment. The company’s 8.875 percent notes due 2018 jumped 5.78 cents to 62.46 cents on the dollar as of 11:45 a.m. in Hong Kong, according to Bloomberg-compiled prices. Its 10.25 percent debt due 2020 advanced 5.96 cents to 62.22 cents on the dollar. The securities fell to record lows below 30 cents on Jan. 7. The rebound follows reports the Shenzhen local government is seeking new investors to take over the developer based in the southern Chinese city after founder and ex-chairman Kwok Ying Shing quit on Dec. 31. Kaisa is being probed over alleged links to Jiang Zunyu, the former security chief of Shenzhen taken into custody in a graft probe, two people familiar said. “The Kaisa situation took a major turn to the positive, with the expected government-orchestrated investment finally appearing to be in motion,” Owen Gallimore, a Singapore-based credit analyst at Australia & New Zealand Banking Group Ltd., said in a note to clients today. “The large cities, and Shenzhen in particular, are currently seeing strong demand for land and the developers such as Kaisa clearly have valuable assets.” Sunac China Holdings Ltd. (1918) is in talks to purchase a stake in Kaisa as the Shenzhen government seeks investors for the troubled developer, a person familiar with the matter said yesterday. Sunac has sent a team to speak with authorities and carry out due diligence on Kaisa, the person said. Default Risk Kaisa failed to make a $23 million interest payment due Jan. 8 on $500 million of 10.25 percent dollar bonds. It has a 30-day grace period to make the payment. Failure would produce the first default on dollar bonds by a Chinese developer, according to Standard & Poor’s. Investors should be cautious about Kaisa bonds before a takeover is decided, according to Lucror Analytics, an independent bond research firm in Singapore. “We are bemused that the market is so confident of a Kaisa bailout by a white knight,” Charles Macgregor, head of Asia high-yield research at Lucror, said by e-mail. “Any purchase of the Kwok family stake would also require a general offer to other shareholders.” To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Ken McCallum, Chris Bourke

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