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Top China Developer Sunac Seen on Brink of Bond Default

If Sunac goes into default, it could ramp up panic about China’s property crisis, executives at other firms said, as Sunac is a big group known for its mid- to high-end properties

A banner for indebted China Sunac is seen in Shanghai. The developer may be near default on an offshore bond.
The downgrade also reflects Sunac's deteriorating financial transparency, as the company says it will not publish its audited 2021 results by the deadline at end-March 2022. File photo: Reuters.


Sunac China Holdings, one of the country’s biggest developers, is close to default on an offshore bond, an event likely to amplify concern about China’s property crisis.

Holders of bonds issued by Sunac said on Wednesday they failed to get coupon payments from the high-end developer on a $750-million offshore bond by the end of a one-month grace period.

Sunac – China’s third biggest builder by sales – needed to pay $29.5 million in interest on the October 2023 bond that was due in April or risk falling into default.

A default could trigger the cross-default provisions on all of the developer’s $7.7 billion worth of bonds in international capital markets. It could also ramp up panic about China’s property crisis.

Sunac has missed four dollar coupon payments totalling $104 million since April, but three of them are still in grace periods.

The sources declined to be identified as they were not authorised to speak to the media, while Sunac declined to comment.

The firm said in March it was discussing debt solutions with offshore creditors after downgrades by global rating firms, as well as seeking payment extensions with onshore bondholders.

Sunac is the fourth largest issuer among Chinese developers after China Evergrande Group and Kaisa Group, and top seller Country Garden, which is deemed still financially sound.


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Series of Defaults

China’s property crisis has seen a series of defaults on offshore debt obligations, highlighted by Evergrande, as well as bond exchanges, with Zhongliang Holdings the latest one to extend payments.

The debt crisis has spilled over into the country’s vast property market, with new home sales and construction slumping as financing gets tougher and potential home buyers shy away, fearing some projects may be stalled.

Still, with many Chinese property bonds now trading below 30 cents on the dollar, the sector’s debt problems have largely been priced in, market participants said. Sunac’s bond in question traded at 19.386 cents on Wednesday morning, according to data from Duration Finance.

“The impact of Sunac’s default on the financial market will be smaller than Evergrande and Kaisa’s default,” Fitch Ratings analyst Edwin Fan said. Fitch downgraded Sunac to “CC” in late March before withdrawing the rating last month.

“[But] it shows that many property developers will need to do onshore and offshore debt exchange,” Fan added.

Executives at two property firms said the market had been somewhat confident that Sunac would be able to repay its debt with state support, and now its failure reflects a higher likelihood that a few other major developers, such as Shimao Group, could miss their upcoming obligations.

“These companies hold accounts for a sizeable portion of the total Chinese property high-yield bonds and they are widely held by investors including some passive funds,” one of the executives said.

“It will just further hit the confidence and investors will never touch Chinese property bonds again.”

Shimao did not respond to a request for comment.


Scrambling to Raise Funds

In March, Fitch estimated Sunac had up to $2.8 billion of offshore debt that could become immediately due because of creditors requesting early payments after multiple-notch downgrades by rating agencies.

The company has an additional 11 billion yuan of debt in onshore and offshore capital-market maturing this year.

Sunac has been scrambling to raise funds by issuing new shares and disposing assets.

On Tuesday, media outlet Cailianshe reported the developer is in talks with potential buyers to sell a 51% stake in the world’s largest indoor snow park, currently under development in Shenzhen.

It has sold assets to state-owned peers including Beijing Capital Group and Zhuhai-based Huafa Group for over 20 billion yuan, local media reported earlier this year, and a source said it was in talks with four major Chinese asset managers including Cinda on project cooperation.

If Sunac goes into default, it could further hammer already weak homebuyer confidence in China, executives at other developers cautioned. Sunac is a major company in China and known for building mid- to high-end properties.


• Reuters with additional editing by Jim Pollard



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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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