After default, Sunac resumes paying off its debt

The developer has raised billions since last year but it’s still far from enough.

Photo from CFP

Photo from CFP



Real estate developer Sunac China Holdings said it had made an interest payment on a 3.3-billion-yuan (US$495 million) bond, two days ahead of the due date. This is the second time in two weeks that Sunac made good on its mounting debt. A 10-percent principal payment on a 400-million-yuan bond was paid on May 15, but this did little to soothe the nerves of those whose money is still at stake. Just two days before that, Sunac missed US$100 million in interest payments on four dollar bonds, putting already skittish creditors on even higher alert.

Sunac blames its woes on “dramatic changes to the macro environment in the property sector in China'' that started in the second half of 2021. Despite declining sales and tightening credit, it managed to avoid default until late Q1. More than 4 billion yuan (US$600 million) of debt was paid off on time in January. And an overdue 30-million performance bond was paid after a supplier made some noise. 

But on March 25, Sunac said it would not be able to pay back a 400-million-yuan bond due on April 1. It negotiated an 18-month grace period to spread payments – the first was the one made on May 15 – after pledging additional properties as a guarantee, including Chairman SUN Hongbin’s personal assets. 

By then, its shares were already 90 percent down from the February 2020 highs. Trading stopped altogether after Sunac missed the March 31 deadline for its 2021 results. It did issue a warning, though, that profits would be down 85 percent. 

Sunac has hired investment bank Houlihan Lokey and law firm Sidley Austin to help with its liquidity issues, most likely through debt restructuring to gain time. Sunac currently has 12 offshore bonds totaling US$7.8 billion, US$1.2 billion of which is due in the next quarter. 

Sunac has been selling assets since late last year. From October to December, it unloaded US$554 million worth of its holding in-home brokerage firm Beike, whose stock price was already in a downward spiral. During this period, Sunac also raised HK$7.3 billion (US$940 million) from the stock market and another US$450 million in the form of an interest-free loan from Sun Hongbin. 

But that was still not enough. Since November, Sunac has sold, among other things, two developments in Hangzhou for 1.7 billion yuan, three in Shanghai for 2.7 billion, a 40 percent stake in an under-construction development in Kunming for 1.4 billion, and a property management business for 1.8 billion. As in the case of other recent selloffs, properties on the wealthy Southeast coast are more popular among buyers and are thus the first to go. Another Sunac property in Shenzhen is on the market but hasn’t found a buyer yet.

Seventy percent of Sunac’s liquid assets are in the form of inventory worth more than 600 billion yuan. But anti-speculation real estate policies, as well as pandemic lockdowns, have put a question mark on its ability to dispose of them. Its home sales in April halved from a year ago, both in terms of square footage and transaction amount. The hope is that sales will pick up when lockdowns are lifted, but payables will mount much faster as contractors go back to work. 

It is unlikely that Sunac will be able to take out new loans to pay off old ones given sales and its struggle with debt. Its best hope is to be bailed out by a developer in better shape or the government. A takeover, or at least a partial one, is reportedly in negotiation, with talks on hold since the debt crisis escalated.