Analysis: Chinese property developers look to bite bullet and revamp onshore debt in 2025

Logan

17/12/2024 23:00

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      Sunac makes some progress in restructuring of onshore debt
    

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      Logan plans to start haircut discussions in Jan, source
says
    

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      CIFI, Country Garden among firms facing bond payment
deadlines
in 2025 
    

  
    By Clare Jim
       HONG KONG, Dec 18 (Reuters) - Progress by Chinese
property developer Sunac  1918.HK  towards a landmark
restructuring deal for yuan bonds could open the gates to a
flurry of debt agreements next year, as the sector gives up on
returning to financial health anytime soon.
    Hit with a liquidity crisis since 2021, China's highly
indebted developers began tackling the restructuring of offshore
bonds in 2022. But for politically sensitive onshore bonds, they
have repeatedly extended maturities, pinning their hopes on a
pickup in cashflow.
    That practice no longer seems viable given the prolonged
weakness in housing demand and the broader economy, industry
officials and analysts say.
    Logan Group  3380.HK  plans to restructure all of its
onshore bonds in 2025, said a person briefed by the company. The
Shenzhen-based real estate development firm faces repayments of
2.4 billion yuan ($330 million) next year, according to LSEG
data.
    It aims to start discussions with bondholders in January and
gain approval in March, the person said, adding that the
proposal will ask bondholders to take huge losses.
    Shanghai-based CIFI Holdings  0884.HK , a large property
developer due to repay bondholders 3.1 billion yuan in 2025, is
also considering a debt revamp, a separate source briefed by
CIFI said. But much would depend on whether Sunac is successful
in securing a deal, the source added.
    The sources were not authorised to speak to the media and
declined to be identified. Logan and CIFI did not respond to
Reuters requests for comment. 
        The two are among many developers with bond payments due
next year. For example, embattled Country Garden  2007.HK , the
country's No. 2 private property developer, is expected to repay
onshore creditors 6.6 billion yuan next year. Country Garden,
based in Guangdong province, declined to comment on its debt
repayment plans.
    Though authorities have sought to bolster the sector with a
range of measures such as cutting mortgage rates and minimum
down-payment ratios, fundamentals for most developers have not
changed much in the past three years.
    "There's no new liquidity and no new lending and sales
haven't improved," said Glen Ho, national turnaround &
restructuring leader at Deloitte.
    "The focus for 2025 will be onshore debt restructuring," he
added.
    
    SUNAC - THE LITMUS TEST 
    Beijing-based Sunac has said it plans to cut $2.1 billion
worth of onshore bond debt by more than half. Last week it
secured sufficient support from bondholders for two of the 10
bonds it aims to restructure, a source has said.
    But Sunac will need to gain sufficient approval from holders
of all 10 bonds for the deal to move ahead. The voting deadline
for the other eight has been delayed till Dec. 23 and if Sunac
is successful, it will mark the first company-led restructuring
of yuan debt with steep haircuts in the property sector.
    "I don't think it's going to be easy for Sunac to get all
bondholders to sign off on the deal," said a senior executive at
a property developer who declined to be named because of the
sensitivity of the issue. "Every developer is watching. If it
manages to cut debt, we'll want to do it too." 
    Foreky Wong, founding partner of advisory firm Fortune Ark
Restructuring, said Sunac's proposal to bondholders suggests
authorities are no longer against onshore creditors taking on
some of the property developers' pain.
    "It shows onshore creditors will also need to help the
sector's deleveraging by taking losses," he said.   
        The Chinese Securities Regulatory Commission did not
respond to a request for comment.
    Chinese real estate developers had total liabilities of
roughly $12 trillion in 2023, according to an estimate by
China's National Bureau of Statistics. That figure includes all
kinds of debt including loans, trust and payables, as well as
onshore and offshore liabilities.
    In general, the property sector has more onshore debt than
offshore debt. Onshore debt tends to be held by a range of
investors from state insurers to private asset managers.
($1 = 7.2816 Chinese yuan)

 (Reporting by Clare Jim; Additional reporting by Liangping Gao
in Beijing and Gu Li in Shanghai; Editing by Sumeet Chatterjee,
Kate Mayberry and Edwina Gibbs)
 ((clare.jim@thomsonreuters.com;))