China developers' survival fight gets litmus test
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.
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.
Graphic: Beijing's policies have boosted Sunac's share price https://reut.rs/3AJ8JSy
Editing by Antony Currie and Aditya Srivastav
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
