Sunac China Gains in Hong Kong After Offer to Buy Out Kaisa

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  • Post last modified:February 9, 2015

(Bloomberg) — Sunac China Holdings Ltd. rose the most in 2 1/2 weeks in Hong Kong trading after it offered to buy out troubled Chinese developer Kaisa Group Holdings Ltd.

Shares of Sunac advanced as much as 5.6 percent, the most since Jan. 21, and were 4.8 percent higher at HK$7.27 at the noon break. The stock, which was suspended on Jan. 30, resumed trading while Kaisa shares are still halted pending further announcements.

Sunac, which bought a 49.3 percent stake in Kaisa on Jan. 30, will make a general offer to buy the rest of the company at HK$1.80 a share, or 13 percent more than Kaisa’s last traded price, the companies said in a joint statement on Feb. 6. The deal helped Kaisa avoid a bond default while letting Sunac expand to southern Chinese cities such as Shenzhen, where Kaisa is based.

The acquisition is a “bargain purchase,” China International Capital Corp. analysts led by Eric Zhang said in a note on Monday. “Kaisa could help sustain Sunac’s high sales growth” with 34 million square meters (366 million square feet) of land inventory across 30 cities, they said.

Sino Life Insurance Co., the second-largest shareholder of Kaisa, will keep its 29.9 percent equity stake, according to the statement. The deal is conditional on Kaisa obtaining debt waivers, settling court applications, and resolving “irregularities” in its business, the companies said in the statement.

Bonds Fall

Kaisa’s fortunes started unraveling in December when the government blocked some of its apartment sales in Shenzhen. Sunac Chairman Sun Hongbin said in a Feb. 4 interview that he didn’t know whether the sales restrictions will be lifted. They are Kaisa’s best assets with gross margins of 50 percent to 60 percent, according to Citigroup Inc.

Kaisa’s 2020 dollar-denominated bonds fell 1.3 cents to 73.4 cents on the dollar, according to Bloomberg-compiled prices. The company’s $800 million of 8.875 percent 2018 notes slipped 1.5 cents to 73.2 cents.

“Investors could be worried about too many conditions Sunac attached to the general offer, such as the unblocking of Shenzhen units and the withdrawal of all court proceedings by creditors,” said Charles Macgregor, the Singapore-based head of Asia high-yield research at Lucror Analytics.

Sunac’s $400 million of 12.5 percent 2017 notes were little changed at 104.3 cents on the dollar as of 12:10 p.m. in Hong Kong.

“Given the rush, it is impossible that Sunac has completed comprehensive due diligence,” analysts led by Hugo Hou at Haitong Securities Co. wrote in a report on Monday. “There are some uncertainties ahead for the buyer.”

The Haitong analysts upgraded Kaisa’s stock rating to buy from sell because of Sunac’s acquisition. They kept a buy recommendation on Sunac.