Sunac has agreed to acquire four Shanghai projects from Kaisa for 2.37 billion yuan. Keith Bedford / Bloomberg

Bonds of Kaisa Group Holdings Ltd surged by records after Sunac China Holdings Ltd said it has signed an agreement to buy a 49.3 percent stake in the troubled developer and will make a general offer.

Kaisa's $500 million of 10.25 percent 2020 notes jumped 17.8 US cents to 77.27 US cents on the US dollar as of 3:03 pm in Hong Kong, according to Bloomberg-compiled prices. Its $800 million of 8.875 percent notes advanced 16.5 cents to 76.46.

Sunac, based in Tianjin, is buying the Kaisa stake from the family of former chairman Kwok Ying-shing, Sunac's Chairman and Chief Executive Officer Sun Hongbin said in an interview at Kaisa's headquarters in Shenzhen Wednesday. There's an even chance of the deal getting done, he said. Sun said he wants to get Kaisa's $23 million missed interest on its bonds, that was due Jan 8, paid before a 30-day grace period expires this Saturday.

"The best-case scenario would be a much stronger company buying Kaisa, like a State-owned entity, but a Sunac scenario would still be very positive for the bonds, especially if the bond-coupon is paid on time," said Oscar Chow, head of Asia credit research in Hong Kong at Mitsubishi UFJ Securities HK Ltd. "There's a fair amount, multiple-point upside potential to Kaisa bonds."

There would be no losers if everybody supports the deal, said Sun. Sunac agreed on Feb 1 to pay 2.37 billion yuan ($379 million) for four Shanghai-based projects owned by Kaisa.

Kaisa's woes began late last year when the government in Shenzhen, less than 25 kilometers from Hong Kong, blocked approvals of its property sales and new projects in the city. It's also being probed over alleged links to Jiang Zunyu, the former security chief of Shenzhen who was taken into custody as part of a graft probe, two people familiar with the matter said last month, asking not to be named because the connection hasn't been made public.

The developer missed the coupon payment on Jan 8 and had some of its bank accounts frozen by local courts after Kwok quit the company on Dec 31.

In order for Sunac's stake purchase to go through, Kaisa's Shenzhen-based projects would have to be unlocked, so the government agreement could still be a sticking point, according to Mitsubishi UFJ Securities' Chow.

"The cash Kaisa received from the asset sales in Shanghai is unlikely to be remitted offshore in time to be used to meet the coupon payment before the end of the grace period, so Kaisa still needs to resort to other means for a cure," Chow said.

While the market turbulence sparked by Kaisa led to a drought in issuance of dollar bonds from Chinese mainland developers, there are signs that investor demand is rebounding.

Sino-Ocean Land Holdings Ltd became the first mainland real estate company to sell notes in the US currency since Kaisa's missed coupon payment when it raised $1.2 billion in a two-part sale last week. Shimao this week sold $800 million of bonds due in seven years at a yield of 8.375 percent.

"Everyone is looking at this weekend and if Kaisa doesn't make the payment there could still be a knee-jerk reaction," said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. "The market does remain open for mainland developers."

(HK Edition 02/05/2015 page8)