Tianjin-based Sunac said on Thursday that it has terminated a $1.2 billion deal to acquire Kaisa, clouding the outlook for the troubled Shenzhen-based developer, which last month became the first Chinese developer to default on its offshore bonds.
The company in February made an offer for all of Kaisa, having already agreed to buy a 49.3% stake in the debt-laden property group from chairman Kwok Ying Shin and his family members.
However, in a Hong Kong exchange filing on Thursday Sunac said that “certain conditions precedent have not been fulfilled" and that the parties involved in the agreement believe that the conditions "would not be able to be satisfied on or before the long stop date."
The filing also said that Morgan Stanley tendered its resignation as financial adviser to Sunac.
The termination was not entirely unexpected given recent headlines, in particular chairman Kwok Ying Shing "efforts to undermine the deal," but still adds to the uncertain outlook for Kaisa bondholders, MUFG analyst Guo Rui said in a research note.
Chairman Kwok resigned from Kaisa in December but then in a surprise move rejoined the company as chairman in April.
The Chinese property developer has been locked in negotiations with offshore bondholders over the terms of its debt restructuring since it mooted an unpopular offshore debt swap back in March. At that time, Kaisa proposed extending the tenors of all its senior notes by five years, slashing coupon rates by 50%, and waiving interest payments for the first two years.
So far no agreement has been reached. “Kaisa has not reached an agreement with onshore and offshore creditors and they need to do so in order to move forward,” Chris Yip, an analyst at Standard & Poor's, said. “Sunac seemed to have lost patience with that.”
Limited reaction
In reaction to the collapse of the deal, Kaisa bonds dropped by about two points across the curve to the low 60s, according to one Singapore-based fund manager on Thursday afternoon.
“It hasn’t plunged that much. I think the environment for Chinese real estate has improved, particularly in Shenzhen, where Kaisa’s projects are,” said the fund manager, who doesn’t hold any Kaisa bonds.
Chinese monetary policy has been eased in recent months, helping to shore up the country's shaky property sector. Since the fourth quarter, the central bank has cut interest rates twice, lowering the rate from 6% to 5.35%. It has also cut the reserve requirement ratios for banks to 18.5% from 20%.
As a result there has been an improvement in market sentiment towards Chinese property companies since February, when Sunac made its offer for Kaisa.
Sunac’s collapsed takeover of Kaisa is its second after it failed to buy a stake in rival Chinese developer Greentown. However, the company should be able to recoup payments it has made to Kwok's family.
On Thursday, Sunac said it has made a total of HK$2.3 billion worth of pre-payments to the Kwok family and under the termination agreement, the Kwok family is to refund HK$1.15 billion by May 29 and the remaining HK$1.16 billion by December 28.
“For Sunac, they will lose an opportunity to expand in Shenzhen. But they are still very aggressive in the way they want to expand and I don’t think that ambition has really diminished after two failed acquisitions. We expect they will continue to look at opportunities in tier 1 and existing cities,” S&P's Yip said.
Kaisa defaulted on its offshore bonds in April including its outstanding $250 million 12.875% senior notes due 2017 and $800 million 8.875% senior notes due 2018.
