Sunac China flags difficulty making Sept dollar bond payments, sources say

Sunac China Holdings

06/01/2025 23:00

(Repeats story published on Jan. 6 with no changes to text)

        * 
      Sunac says unlikely to make bond payment in Sept, sources
say
    

        * 
      Sunac tells bondholders it will come up with plans,
sources say
    

        * 
      Second round of developers' debt revamp expected on weak
cash
flow
    

  
    By Clare Jim
       HONG KONG, Jan 6 (Reuters) - Developer Sunac China has
informed some of its dollar creditors it is unlikely to meet a
September bond maturity deadline, two sources said, as weak
sales raise the prospects for a new round of offshore debt
restructuring in the property sector.
    Sunac  1918.HK , which used to be among the country's top
developers by sales, was the first to complete a comprehensive
overhaul of its $9 billion offshore debt in November 2023, after
the sector was jolted by an unprecedented debt crisis in 2021. 
    As part of the restructuring process, the company's first
tranche of restructured notes will mature in September, with the
option to extend maturity by one year. The extension provision
also applies for the tranche due in September 2026. 
    In recent weeks Sunac indicated to some bondholders that it
would explore alternatives for September 2025 tranche maturity
due to uncertainties in the sector's sales recovery that could
affect its ability to repay, the two sources said.
    Beijing-based Sunac has not yet provided specific details of
these options to its creditors, said the sources, who have
knowledge of the matter but did not want to be identified as the
conversations were private.
    Sunac declined to comment.
    This development adds to market expectations the crisis-hit
sector will see a second round of offshore debt restructuring
with not many betting on a recovery in companies' cash flows in
the near future despite Beijing's support measures.
    Chinese authorities have sought to bolster the property
sector, which accounted for around a quarter of the economy at
its peak, with a range of measures including cutting mortgage
rates and minimum down-payment ratios over the past year.
    As part of its debt restructuring roadmap, Sunac had in 2023
provided cash option and shorter note tenures to its dollar
creditors as it had not expected a prolonged market slump, said
three separate people close to the company.
    However, investor confidence in the successful execution of
these plans remains limited, as illustrated by the company's
September 2025 bonds currently trading at around 14 cents on the
dollar, Morningstar senior analyst Arvind Subramanian said.
    "Until they see that traction of these developers actually
generating cash flow, they're not too confident that
restructuring will actually deliver cash flow to repay
investors," Subramanian said.
    
    DEBT RESTRUCTURING 
    In Sunac's case, it is unclear if it would extend the
maturity for the September 2025 tranche or consider revamping
all its offshore debt, possibly involving steep haircuts and
more equity swap, in a second round of debt revamp, the sources
said.
    Chinese property 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, as well as onshore and offshore liabilities.
    Over the last three years, a growing list of developers have
started offshore debt restructuring processes after defaulting
on their repayment obligations to avoid getting liquidated.
    On Monday, developer Logan Group  3380.HK  said that it was
offering a restructuring proposal for the majority of its around
$8 billion offshore debt, including conversion to mandatory
convertible bonds for its offshore creditors.
    An offshore restructuring adviser, who asked to remain
anonymous due to the sensitivity of the issue, said many
developers would struggle to repay offshore debt as they have to
use their cash on home completion and refinancing onshore debt.
    Sunac is also the first Chinese property developer working
towards reducing its $2.1 billion of yuan-denominated bond debt
by more than half through a debt restructuring process. 
    Even as highly indebted developers began tackling the
restructuring of offshore bonds in 2022, they repeatedly
extended maturities for onshore bonds, pinning their hopes on a
pick-up in cash flow.
    Sunac's onshore bond revamp plan, proposed in November, has
so far won sufficient support from holders of eight bonds, but
it needs approval from holders of all of its 10 bonds to
implement the proposal.

 (Reporting by Clare Jim; Editing by Sumeet Chatterjee and
Jacqueline Wong)
 ((clare.jim@thomsonreuters.com;))