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Developer Sunac China admits default on $750m bond
Chairman offers 'sincere apologies' while warning it could miss more debt deadlines
asia.nikkei.com
Chairman offers 'sincere apologies' while warning it could miss more debt deadlines
HONG KONG -- Sunac China Holdings, one of the country's largest developers, acknowledged on Thursday that it had defaulted on a $750 million bond.
Sunac missed $104.73 million in interest coupon payments on four offshore bonds last month but had 30 days to make good on each. The first such deadline, on a 7.95% bond due in October 2023, passed on Wednesday.
"The group asks the creditors to allow the group time to overcome challenges in the current phase," Sunac Chairman Sun Hongbin said in a statement to the Hong Kong Stock Exchange.
He blamed Sunac's woes on "dramatic changes to the macro environment in the property sector in China" over the past year, including plunging sales and constricted access to financing, further aggravated by COVID lockdowns.
"The group would like to express sincere apologies for not being able to fulfill its debt obligations as scheduled," he concluded.
Sunac's Hong Kong shares have been suspended from trading since it missed a March 31 deadline to release its 2021 results, though it had said on March 21 that it expected to record an annual profit decline of about 85% from a year earlier.
"Contracted sales in the key first-tier and second-tier cities which form part of the group's key layout have been significantly affected by the COVID-19 outbreak since March 2022," Sunac said. Its contracted sales fell 53% in March from a year earlier and were 75% lower in April.
Sun put the company's woes in part on international credit rating agencies, saying their downgrades "impeded the measures that were being proactively taken by the group to ease its liquidity issues in March and the second quarter, such as asset disposals and targeted financing plans."
On March 17, S&P Global Ratings slashed its scoring for Sunac by three notches to B-, saying its "accessible cash has diminished following debt repayment, and due to continued cash restrictions at project escrow accounts."
A week later, S&P ceased rating Sunac at the company's request. Fitch pulled its scoring on April 20, noting it no longer had sufficient information, "as Sunac has chosen to stop participating in the rating process."
Sunac said on Thursday that it has hired investment bank Houlihan Lokey and law firm Sidley Austin to advise on solutions to its liquidity issues. Sunac faces deadlines to make good on the other three missed bond coupons over the next two weeks.
"Given the group's current liquidity constraints, there is no assurance that the group will be able to meet its financial obligations when due or within the relevant grace periods," it warned.
Aside from Sunac's offshore debts, its investors are due to be repaid or could demand payment on around 21 billion yuan ($3.1 billion) in domestic bonds through June 2023, according to Moody's analyst Kelly Chen.
A 4 billion yuan issue on which investors had the right to demand repayment last month has been restructured to spread out the "call" dates, with Chairman Sun adding his personal guarantee and the company securing the bond with specific assets.
Sun, a native of Shanxi Province, set up Sunac in Tianjin, near Beijing, in 2003 as his second venture in property development, and it quickly emerged as one of the country's fastest-growing real estate companies with the help of junk-bond financing.
Sun led the company into a number of notable deals, including buying 13 tourism projects from cash-strapped Dalian Wanda Group for 43.8 billion yuan and injecting 15 billion yuan into Leshi Internet Information & Technology, the streaming arm of an electronics conglomerate.
Sunac suffered a complete loss after Leshi went bankrupt and was delisted from the Shenzhen exchange. "Leshi was a failed investment," Sun said in 2018, adding, "I never regret anything I did in the past."
Sunac's profits and revenues continued to grow strongly through those investment troubles but finally began to lose steam last year. In 2021, Sunac posted a rise of just 3.8% in contracted sales to 597.36 billion yuan, though many of its peers recorded net declines.
Sunac's total borrowings, including bonds and loans, stood at 303.53 billion yuan as of June 30, when it had 101.09 billion yuan in unrestricted cash, according to its interim report.
China GDP growth tipped to slow as economy hit by virus, property headwinds
Regulatory tightening in the property sector, deleveraging efforts and recurrent Covid-19 outbreaks are among the factors dragging on China’s economic growth.
www.scmp.com
Real estate investment directly contributes 14-15 per cent of GDP, including construction and residential property development, and about 25 per cent of GDP if taking into account upstream and downstream sectors, JP Morgan estimated.
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