Embattled Chinese developer Sunac gets more creditors on board with US$9 billion offshore debt restructuring plan

Debt-laden Chinese developer Sunac said creditors representing 75 per cent of its US$9.1 billion offshore debt have agreed to restructuring terms.

The creditors have until May 4 to finalise their support for the restructuring plan, Sunac said in a brief filing to the Hong Kong stock exchange on Thursday evening.

It marks a step forward for the embattled developer, which said on March 28 that it had reached an agreement with offshore creditors representing over 30 per cent of its outstanding debt. A source familiar with the deal said the progress indicates "creditors' recognition of Sunac's capability to continue its operation in the future."

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"Investors are concerned about how indebted developers will eventually solve their debt issue. When the restructuring plan is approved and creditors agree to it, it provides an exit for creditors. Everybody should be happy with it," said Raymond Cheng, managing director and head of China/Hong Kong research and property at CGS-CIMB. "No one wants to see bankruptcy or liquidation."

Sunac proposed to creditors that they can swap US$1 billion of debt into US$1 billion nine-year convertible bonds. They will have a 12-month window to convert the bonds into shares for HK$20 apiece once the restructuring plan kicks in. Otherwise, the bonds can only be redeemed once they mature.

Another proposal is to swap their debt claims into a zero-coupon, five-year bond, subject to a cap of US$1.75 billion.

This new bond is convertible into the company's shares at HK$10 each within six months of the effective date of the restructuring. The conversion is subject to a cap of 25 per cent of the outstanding value of the new bond.

Other holders of the new bond can choose to convert their holding into shares later, but the conversion price - not less than HK$4.58 - will vary according to the average market price over 90 trading days prior to notification of conversion.

The remaining holders of the new bond must convert their debt into shares when it matures.

The progress in Sunac's restructuring efforts comes after China Evergrande Group, the world's most heavily indebted property developer, managed to get support from some of its creditors for a US$19 billion debt workout earlier this month.

Recent progress by debt-stricken heavyweights such as Sunac and Evergrande sends a signal that the property sector could "further recover once more developers can get through their debt restructuring and back to normal operations," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.

Leonard Law, a credit analyst at Lucror Analytics, believes Sunac is in much better shape than its peer, Evergrande, which is carrying more than US$300 billion in total liabilities.

"We believe Sunac's business remains viable, due to its better quality assets and management track record. Hence, the completion of its debt restructuring would enable the company to focus on business operations going forward," said Law. "On the other hand, we believe Evergrande remains at high risk of liquidation."

China's property crisis is not yet over, market analysts said. The property sector has US$54 billion of offshore bonds maturing this year, much of which may undergo restructuring as most of their issuers are in distress, according to S&P Global Ratings.

In 2022, the value of offshore property bond defaults nearly doubled to US$52 billion, with the default rate nearly tripling to 25 per cent, it said.

Additional reporting by Pearl Liu

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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