March 11, 2015 / 9:09 AM / 5 years ago

Bondholders plot to get better restructuring terms from China's Kaisa

* Bondholders held call late Tuesday night

* Wishlist includes guarantees on their bonds from Sunac -sources

* Under Kaisa plan, coupon payments due next week to be skipped

By Umesh Desai

HONG KONG, March 11 (Reuters) - Some of developer Kaisa Group’s bondholders are pushing for better debt restructuring terms, such as a guarantee for their bonds from Sunac China which has proposed a takeover of its rival, sources familiar with the matter said.

But it was unclear whether bondholders seeking to negotiate with the liquidity-strapped property firm are in the majority, and even if they are, any bargaining power is likely to be limited to a small improvement in terms.

This week, Kaisa unveiled a plan for $2.5 billion of its offshore and convertible debt, under which the maturity on six sets of bonds would be extended by five years and coupons slashed although there would be no reduction in principal.

While not as tough as a liquidation scenario painted in an earlier report, some fund managers argue that offshore creditors are being shortchanged compared to onshore counterparts, and are being asked to bear greater losses than shareholders despite having priority in claims.

“Bondholders are not entirely satisfied with the proposal and they are looking at how they will respond,” said a participant in a late Tuesday conference call organised by law firm Kirkland & Ellis which is representing Kaisa offshore bondholders.

Kirkland & Ellis declined to comment on what strategy it may pursue or say how many creditors it represents.

Kaisa’s proposal is expected to halve its coupon burden and also calls for interest to be paid in cash only after 2017, meaning that two coupon payments due next week - $16 million on its 2017 bond and $35.5 million on a 2018 bond - are set to be skipped.

Participants on the call confirmed they were told to expect that the payments would not be made. They declined to be identified as they were not authorised to speak to the media about the matter.

Separate market sources say a potential counter-proposal could take the form of a less severe haircut or a shorter maturity extension, in line with terms for onshore creditors.

But bondholders seeking to push back on terms will be walking a fine line as Sunac could abandon its takeover plans if a successful deal with creditors is not reached. It has given a July 31 deadline.

If liquidation was enforced, offshore creditors would only get 2.4 percent of what they were due, according to an analysis by advisory firm Deloitte Touche Tohmatsu, which was hired by Kaisa.

Kaisa’s current bond prices suggest the majority of bondholders expect the deal to go through.

Using the internal rate of return implied by the restructuring terms, bonds maturing in 2017 through 2020 should trade around 55-60 cents on the dollar, according to analysts. This is slightly higher than the current price range of 45-50 cents.

“This is a concrete proposal and terms can be negotiated but I think it’s a step in the right direction,” said Wei Sun, managing partner at One Asia Investment Partners which owns Kaisa bonds.

“In all restructuring, it’s not just the economics, it also depends on how fast it can go through.”

Reporting by Umesh Desai; Editing by Edwina Gibbs

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