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aws试用账号(www.2km.me)_Insight - Foreign hedge funds take another run at Kaisa in a changed China

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Debt issue: A Kaisa City Plaza development advertisement in Shanghai. The firm was labelled a defaulter, along with China Evergrande Group, by Fitch Ratings last week. — Bloomberg

THEY meet again.

Hedge funds that profited from the debt restructuring of Kaisa Group Holdings in 2015 are back, circling the Shenzhen-based real estate developer that is once again trying to dig out from under a mountain of debt.

This time, the stakes are even bigger. About US$12bil (RM50.6bil) of dollar-denominated debt is at risk versus only US$2.5bil (RM10.5bil) back then.

A group of bondholders advised by Lazard Ltd has offered about US$2bil (RM8.4bil) of new financing to Kaisa, which was the first Chinese developer to default on dollar-denominated debt.

The Shenzhen-based firm, which was already late on repaying a US$400mil (RM1.7bil) note, was labelled a defaulter, along with China Evergrande Group, by Fitch Ratings last week.

One mover behind the new consortium – as it was in 2015 – is San Francisco-based Farallon Capital Management, according to investors.

Back then, the hedge fund, which has a history of investing in distressed emerging markets from Argentina to Indonesia, along with BFAM Partners Hong Kong Ltd, led a group of creditors that initially proposed taking an equity stake in Kaisa in the restructuring.

Even though the offer was roundly rejected amid nasty negotiations and squabbles among investors, Farallon came out quite nicely after holding out in its confrontation with Kaisa.

Following the January 2015 default, an initial proposal in March from the company that offered sharp cuts to coupon rates would have amounted to more than a 40% haircut, Debtwire reported at the time.

But the final deal sweetened by Kaisa a year later to prevent a drawn-out court battle, promised a recovery of about 80%. As Kaisa resumed apartment sales, the eventual payouts were even better. In about 1½ years, Kaisa’s 8.875% coupon note due in March 2018 had climbed to the high 80s from 33 cents (RM1.39).

So it’s no wonder that investors are tempted to give Kaisa another go. They’ve pitched several fundraising strategies, including Kaisa selling equity or convertible bonds, that have echoes of the past.

But China has changed – the political and economic environment portend a more hazardous road ahead for foreign capital.

For one, international creditors benefited in 2015 from a tussle for control of Kaisa between chairman Kwok Ying Shing and Sunac China Holdings, a rival developer that had sought to buy out Kwok’s stake shortly after Kaisa’s default.

In May 2015, Sunac dropped out, after Kwok hinted that he would offer a much improved deal to offshore bondholders.

This time, no bidding war is on the horizon. Private property developers that have withstood China’s heavy-handed crackdown on their financing this year will be too shaken to try a big acquisition.

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