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Sunac, one of China’s biggest property developers, has launched a second restructuring of its offshore debt in an unprecedented move that shows the country’s real estate slowdown is dragging on longer than expected.
The developer had unveiled its first offshore restructuring of around $10bn in debt in late 2023, bolstering hopes of recovery nearly two years after the default of its peer Evergrande ignited a sector-wide cash crunch.
But Sunac recently warned it was struggling to make offshore payments and faces a fresh winding-up petition from the Hong Kong arm of Cinda Asset Management, one of China’s four main state-owned “bad banks” set up to acquire uncollectable debts.
Sunac said in a statement to the Hong Kong Stock Exchange that it would pursue “a more comprehensive holistic offshore debt solution”. It had hired Houlihan Lokey and Sidley Austin as financial and legal advisers respectively.
“The current market conditions are significantly below the expectations when the prior offshore debt restructuring plan was formulated,” Sunac added.
Its second restructuring — the first of its kind for any major player across dozens of defaults — highlights the dire situation for Chinese developers despite official efforts to restore confidence in the sector.
While the developers overwhelmingly operate in the mainland’s vast housing market, dozens have listed in Hong Kong, where restructuring proceedings are now focused on their offshore borrowings, despite them being only a small fraction of their overall debts.
China’s property market anchored economic growth for decades, but began to unravel in 2021 after Beijing cracked down on excessive leverage. A recovery has failed to materialise, with new home prices slumping over much of the past two years and investment in developments sinking 10 per cent last year.
Homeowners, who typically buy new homes off-plan, have also shown signs of avoiding private property developers, given the concerns that they would not have sufficient funds to complete construction.
State-owned developers now dominate land purchases, according to multiple analysts. They have increased their activity in wealthy cities where real estate development is comparatively resilient.
The involvement of state-backed Cinda in Sunac’s restructuring points to a fraught environment in the mainland, where many powerful counterparties, from banks to local governments, are still caught up in the fallout from the slowdown.
In January, Sunac warned of difficulties in making upcoming offshore payments, which include interest on a restructured note due at the end of this month. Last week, the developer warned of an expected loss of Rmb26bn ($3.6bn) in 2024, compared to one of Rmb8bn a year earlier.
Lawyers for Cinda yesterday told a Hong Kong court the company had yet to produce any documentation for a new restructuring, according to Bloomberg.
