Early one morning in February, Sunac China Holdings’ chief financial officer Gao Xi engaged in a heated argument with bondholders for two hours, and the beleaguered developer had already made its best offer. I told him that I did it.
Negotiations were so intense that some creditors considered calling it quits during the lunch break. But Gao returned in the afternoon with an apology, paving the way for the restructuring agreement that took effect last week. The agreement is the first between major Chinese developers since China’s government’s debt-reduction efforts sparked a historic industry crisis three years ago.
As much of China’s financial world is now focused on the problems of rivals such as China Evergrande Group, which faces possible liquidation at a court hearing on Monday, Sunac is a $194 billion bond lender for Chinese developers. This gives the market a glimmer of hope. The path to an agreement, compiled from testimony from more than a dozen people familiar with the negotiations, provides a potential roadmap for dozens of troubled developers.
Sunac is simply showing that it can rebuild,” said Richard Ong, co-chairman of RRJ Capital, one of its creditors. “They should set an example for other real estate companies in China. The government must also put pressure on companies that don’t want this.”
Sunac declined to comment for this article and had to restructure $10.2 billion in debt. Otherwise, a series of defaults could threaten the survival of what was once China’s third-largest construction company.
Mr Gao held his second face-to-face meeting in Hong Kong since mainland borders reopened, but warned bondholders such as PAG and Pacific Investment Management that they would not hold an afternoon meeting unless they intend to complete negotiations. suggested that it be discontinued.
The CFO’s U-turn paved the way for a restructuring agreement around 5 p.m. They met again on February 28 to finalize terms. After just a few weeks, more than 75% of offshore creditors had signed the agreement. The company received court approval for the plan in October, and the restructuring took effect on November 20.
Sunac has long been in trouble, as aggressive expansion, including theme park acquisitions, made it the country’s most indebted developer in 2017. As bank loans dried up and home sales slumped, the company defaulted on dollar bills in May 2022.
At the time, the company had debts of more than 1 trillion yuan (US$140 billion).
According to the people involved, there was a major difference of opinion with creditors during the 2022 online talks, and they requested anonymity to maintain relationships. Sunac had proposed exchanging some of its debt for equity at a conversion price of HK$20 per share, but creditors flatly rejected the proposal after stock trading was halted below HK$5, the people said. said.
PJT Partners Inc. and Linklaters LLP advised a special group of nine of his large creditors holding unsecured offshore debt. These include Ashmore Group plc, AM Squared Ltd, Barings LLC, Broad Peak Investment Advisers Pte Ltd, Contrarian Capital Management and Varde Partners.
AM Squared, Ashmore, Barings, Contralian, Linklaters and Pimco declined to comment.
Mr. Gao, a company executive who joined Sunac in 2007, will gradually settle with his creditors. A key motivation was the developer’s desire to eliminate the “defaulter” label. That’s because it will lower asset prices and increase the chances of receiving government support, the people said, citing conversations with the CFO.
Similar conditions were given to Chairman Son Hongbin, whose $450 million loan is part of the debt being restructured, to win support from bondholders, the people said. Sunac and its creditors ultimately agreed to convert debt into equity, and bondholders decided to extend the repayment period from the originally proposed seven years to up to nine years, the people said.
“They were also very open and willing to consider all options,” RRJ’s Ong said. By proactively engaging with creditors, Sunac has built trust that will help with future financing efforts, he said.
S&P Global Ratings said the deal would reduce Sunac’s debt, rather than just extending bond payments as was common in other negotiations, and would take Sun’s stake from nearly 40% to It is notable in that it was diluted to less than 25%.
“As bondholders, we are happy to work with companies like Sunac who are proactive in finding solutions that balance Sunac’s interests while taking into account the challenges of China’s real estate sector.” ‘Bondholders and other stakeholders,’ said Sandeep Gupta, managing director at Broad Peak Investment Advisors.
White list
Development stocks rose on the news, but non-performing corporate bonds remained almost unchanged, indicating creditors’ pessimism. All of Evergrande’s bonds are trading at less than 2 cents on the dollar, while Sunac’s new bonds are priced at 9 to 16 cents on the dollar, according to data compiled by Bloomberg. . Still, other developers are following in Sunac’s footsteps. Yuzhou Group Holding could finalize a debt restructuring plan within the next few months, according to people familiar with the discussions.
Yuzhou did not respond to Bloomberg’s request for comment. China’s Aoyuan Group announced on Tuesday that it had received sufficient support from creditors for its restructuring plan.
However, Sunac still faces major challenges in generating stable cash flow in a market where demand for housing has plummeted. Xu Liqiang, deputy director of fixed income at Shanghai Yinba Investment Co., Ltd., cited a July presentation, saying the company needs to achieve monthly sales of at least 15 billion yuan.
The company reported contract sales of just 4.76 billion yuan in October.
Zerlina Zeng, senior credit analyst at CreditSights, said Sanak is likely to list for government support, which “could create a positive feedback loop for home sales and access to financing.” There is a gender,” he said. “However, our long-term survival and growth still requires a more sustained recovery in home sales and stabilization of prices in the secondary market.”
– With support from Emma Dong.
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