Chinese developer Sunac makes debt restructuring breakthrough

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Chinese developer Sunac has won court approval to restructure around $10bn of debt, marking one of the first resolutions of its kind among China’s distressed real estate companies.

The plan, which was set out in March this year after Sunac missed interest payments on a US dollar bond in May 2022, was approved by a high court judge on Thursday at a hearing in Hong Kong.

Sunac, one of China’s largest developers in 2021 before it defaulted, will issue new notes and convertible bonds to creditors as part of its plan. The case did not clarify the implications for the developer’s onshore debt, which are the greater part of its overall Rmb1tn in liabilities.

The company’s Hong Kong-listed shares jumped by 6.3 per cent on Thursday.

The breakthrough comes at a time of continued distress for China’s property sector, which typically drives more than a quarter of economic activity in the country but has been weighed down by developer defaults.

Missed interest payments in 2021 by heavily indebted developer Evergrande sparked a liquidity crisis in the sector. Evergrande’s restructuring plan was derailed last week after the company said it could no longer issue “new notes” because it was “being investigated”.

This was an apparent reference to a China Securities Regulatory Commission inquiry into a suspected breach of information disclosure rules. People familiar with the discussions said they had been told the company’s application to China’s securities regulator to issue new notes had been rejected, without providing further details.

Last Thursday, Evergrande said its chair had been placed under “mandatory measures” due to suspicion of “crimes”. Police have also detained some staff at its wealth management unit.

China’s drive to reduce leverage in the property sector in 2020 increased funding pressure on heavily indebted developers but has recently taken steps to ease its approach.

Country Garden, a developer that was previously seen as safer than its peers, came close to missing interest payments over the summer.

Chinese policymakers have largely emphasised the need to complete unfinished construction projects in a bid to increase confidence at a time when consumer spending is weak.

The “vast majority” of Chinese developer dollar bonds are now trading below 10 cents on the dollar, according to an analysis from CreditSights published on Thursday.

“Clearly these prices suggest the market holds very little hope in the recovery prospects for offshore bondholders,” analysts noted. An Evergrande bond maturing in 2025 is trading as low as 2.5 cents on the dollar.

Alongside Sunac, China Fortune Land Development, a developer that defaulted in early 2021 before Evergrande, separately gained approval for its own $5bn restructuring scheme at a London court earlier this year.