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China’s fourth largest property developer, Sunac, just missed a major bond payment and warns it could default on more

May 12, 2022, 3:35 AM UTC

Sunac China Holdings Ltd. didn’t pay a dollar-bond coupon before a Wednesday deadline and doesn’t expect to make payments on other notes, becoming one of the biggest Chinese property companies to renege on its obligations amid a record-breaking wave of defaults.

China’s fourth-largest developer said in a filing to the Hong Kong stock exchange that its ability to access new financing has remained difficult, and has been compounded by a recent Covid-19 outbreak in the country that deepened an industry sales slump. Sunac appointed legal and financial advisers to help assess the firm’s capital structure and liquidity, according to the filing.

China’s property sector has been grappling with a debt crisis since last year, following a nationwide crackdown on excessive leverage and a string of defaults. More than a dozen builders have missed offshore note payments, including giant China Evergrande Group. High-yield dollar bonds from Chinese issuers — the bulk of which come from property firms — are extending losses after dropping for a record eight straight months through April. 

Sunac is the biggest developer to miss a public bond payment this year. The development is fueling concerns about a new wave of debt failures among real estate companies that until just several months ago were considered safer borrowers. Some of Sunac’s dollar bonds were indicated above 80 cents on the dollar as recently as February. They’re now below 30 cents.

Sunac missed an initial deadline last month for a $29.5 million coupon payment on its 7.95% dollar bond maturing 2023, and had a 30-day grace period that expired Wednesday. That opens the possibility of it being declared in default on the obligation, and could trigger cross-default on other offshore debt, the note’s prospectus shows. 

The payment in question was the first of four dollar-bond coupons initially due in April but which holders have told Bloomberg News weren’t paid. 

Nearly all of this year’s public-bond defaults among Chinese issuers have been by developers. Many others in the sector have exchanged or extended debt in order to preserve cash amid the home-sales weakness and firms’ inability to refinance offshore debt.

Sunac has been in the spotlight for months. It has $7.7 billion of dollar bonds outstanding — among the highest for Chinese developers, according to Bloomberg-compiled data. Its shares and dollar bonds have plunged some 80% since September, when a subsidiary’s letter to a local government requesting “special policy support” became public. 

In Thursday’s filing, Sunac said that given its liquidity constraints, there’s no assurance it “will be able to meet its financial obligations when due or within the relevant grace periods.” Not paying when required or reaching a timely resolution with creditors “may result in the acceleration of relevant financial obligations or taking of enforcement actions,” it said. 

The following table shows dollar-bond coupons and interest coming due:

Dollar bondsDue dateAmount (million)Grace period ends
7.95% due 2023April 11$29.5May 11
8.35% due 2023April 19$26.85May 19
6.8% due 2024April 20$20.4May 20
5.95% due 2024April 26$28May 26
7.25% due 2022June 14$621.75N/A

Sunac raised HK$7.4 billion ($945 million) in November from selling stock and a stake in its property-management unit. At the same time, controlling shareholder and Chairman Sun Hongbin provided a $450 million interest-free personal loan to Sunac, among numerous property tycoons going into their own pockets to aid their firms.

The developer, which still hasn’t released 2021 results, reached a debt-payment crossroads this quarter after repeated downgrades from credit raters. It was able to push out over 18 months a 4 billion yuan ($595 million) payment due April 1. The first 10% of that bond’s principal repayments is due May 15, before three other dollar-bond coupons’ grace periods end. Meanwhile, a 1.44 billion yuan note is set to mature June 13.

With assistance from Qingqi She and Rebecca Choong Wilkins.

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