China developers' survival fight gets litmus test

Sunac China Holdings

15/11/2024 02:27

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Chan Ka Sing
       HONG KONG, Nov 15 (Reuters Breakingviews) - A year after
a landmark deal to restructure $9 billion of offshore bonds,
Sunac China  1918.HK  is hoping to cut leverage further and get
a vote of confidence from onshore creditors, too. The $3.1
billion Chinese property developer on Thursday said it will
offer them four options for repaying its domestic paper,
totalling 16 billion yuan ($2.1 billion) according to Reuters,
including buying back some at an 82% haircut and a
debt-for-equity swap. How creditors vote will shed light on
their views about not just the Hong Kong-listed firm’s chances
of survival, but also Beijing’s latest attempts to end the
property slump. 
    The offshore restructuring Sunac pulled off in November last
year also involved an equity conversion and a lengthy extension
for repaying debt, but effectively no haircut. The process
bought time, but staying afloat has remained an uphill battle.
Sunac has received financing lifelines from state-backed firms,
for instance, but only after selling them majority interests in
some valuable projects. It also relocated its headquarters from
Beijing to Tianjin, Chair Sun Hongbin’s hometown, for bigger
support from the local government.
    Sunac's share price has rebounded nearly 80% this year, and
the company was able to raise $155 million last month in the
first share placement by a Chinese developer since 2022. That's
thanks partly to its own overhaul, but also to Beijing's recent
policies to shore up the housing market.
    Riding on the improving mood, Sun is putting his firm to
test again. The more creditors opt to swap their bonds for
equity, for example, the more bullish the signal it'll send. The
company proposed to accept up to 3 billion yuan of bonds under
this option, which, according to sources cited by Reuters, would
be priced at a 167% premium to where its stock closed on Nov. 5.
    Of course, bondholders can walk away now with 18% of their
principal, though the maximum amount repayable under this option
will be 4.4 billion yuan. Otherwise, they can also choose
between repayments backed up by receivables in real estate
projects, or owning new notes carrying a 1% coupon and maturing
almost 10 years later than current bonds.
    Investors in debt restructuring talks with the likes of
Country Garden  2007.HK  will keenly watch how round two of
Sunac's restructuring plays out. 
            
    CONTEXT NEWS
    Sunac China said on Nov. 14 it has proposed a debt
restructuring plan for onshore bondholders. In one of the four
options, the Chinese developer is proposing to buy back up to
4.4 billion yuan worth of bonds at 18% of their nominal value.
It also proposes a swap scheme to convert up to 3 billion yuan
worth of bonds into its Hong Kong-listed shares. 

 (Editing by Antony Currie and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))