Exclusive-Sunac China points to difficulties with September bond payments in dollars, Reuters sources say

From Clare Jim

HONG KONG (Reuters) – Developer Sunac China has informed some of its dollar creditors that it is unlikely to meet a bond maturity in September, two sources said, as weak sales raise the prospect of a new round of offshore debt restructuring in the property sector. Sunac, once among the country’s biggest developers by sales, was the first to complete a comprehensive review of its $9 billion offshore debt in November 2023, after the sector was rocked by an unprecedented debt crisis in 2021. As part of the restructuring process, the company’s first tranche of restructured bonds will mature in September, with an option to extend the maturity by one year. The extension provision also applies to the tranche due in September 2026. Sunac has indicated to some bondholders in recent weeks that it will explore alternatives for the tranche due in September 2025 due to uncertainties in the recovery of sales in the sector that could affect its ability to repay, two sources he said. Beijing-based Sunac has not yet provided its creditors with specific details about these options, said sources familiar with the matter, who did not want to be identified because the talks were private. Sunac declined to comment. The development raises market expectations that the crisis-hit sector will see a second round of offshore debt restructuring, with many not betting on a recovery in companies’ cash flows in the near future despite Beijing’s support measures. Chinese authorities have sought to boost the real estate sector, which made up about a quarter of the economy at its peak, with a series of measures including cuts in mortgage rates and minimum down payment rates over the past year. As part of a debt restructuring plan, Sunac provided its dollar creditors with a cash option and shorter borrowing terms in 2023 because it did not expect a prolonged market downturn, three people close to the company said. However, investor confidence in the successful execution of these plans remains limited, as shown by the company’s September 2025 bonds, which are currently trading around 14 cents on the dollar, a senior analyst at Morningstar Arvind (NS:) said Subramanian. “Until they see that these developers are actually generating cash flow, they’re not too confident that the restructuring will actually generate the cash flow to repay the investors,” Subramanian said. DEBT RESTRUCTURING In the case of Sun, it is unclear whether it will extend the maturity date for the September 2025 tranche or consider restructuring all of its offshore debt, which could involve sharp reductions and more capital swaps, in a second round of debt restructuring, the sources said. . According to an estimate by China’s National Bureau of Statistics, Chinese entrepreneurs had total liabilities of approximately $12 trillion in 2023. This figure includes all types of debt, as well as onshore and offshore liabilities. Over the past three years, there has been a growing list of developers who have started debt restructuring processes abroad after defaulting on their repayment obligations to avoid liquidation. On Monday, developer Logan Group said it was offering a restructuring proposal for most of its roughly $8 billion offshore debt, including conversion to mandatory convertible bonds for its offshore creditors. An offshore restructuring adviser, who asked to remain anonymous because of the sensitivity of the matter, said many entrepreneurs will struggle to pay off offshore debt because they have to use their money to finish a house and refinance onshore debt. Sunac is also the first Chinese real estate developer to work to reduce its $2.1 billion yuan-denominated bond debt by more than half through a debt restructuring process. Even as highly leveraged developers began restructuring offshore bonds in 2022, they repeatedly extended maturities for onshore bonds, pinning hopes on increased cash flow. The reconstruction plan for Sunac’s land bonds, proposed in November, has so far received sufficient support from the holders of eight bonds, but the implementation of the proposal requires the approval of the holders of all 10 of its bonds.