China Sunac has become the first Chinese property developer to announce a second restructuring of its offshore debt. The company stated it seeks a more comprehensive debt solution to mitigate current offshore debt risks, citing the impact of a liquidation petition against it and challenging market conditions.
It has appointed Houlihan Lokey and Sidley Austin as its financial and legal advisors. Earlier, a lawyer representing a unit of state-owned asset manager Cinda informed a Hong Kong court that Sunac had communicated its intention to restructure.
Cinda (HK) filed a liquidation petition this year against Sunac due to the non-payment of a $30 million loan, which surprised many in the market, given that Sunac had completed a $9 billion offshore debt restructuring in 2023, becoming the first developer in China's property sector to do so since the debt crisis began in 2021.
Once accounting for a quarter of China's GDP, the property sector has struggled to recover from a liquidity crisis initiated by a regulatory crackdown on developer debt, resulting in unfinished projects and cautious buyers.
During the court hearing, Thomas Wong, a lawyer for Cinda, sought immediate liquidation of Sunac, stating that the developer had not provided any documentation regarding the new restructuring plan. The hearing has been adjourned to April 28 to allow Sunac time to present its progress.
The company has informed some dollar creditors that it is unlikely to meet a September deadline for the first tranche of restructured notes. Cinda's $30 million loan is expected to be included in the second restructuring, which was not part of the initial round.
As of the end of June, Sunac's total borrowings, including onshore and offshore, amounted to 227.43 billion yuan ($38.23 billion), with total cash of 25.7 billion yuan. The company restructured $2.1 billion worth of onshore bonds late last year, significantly reducing its debt, but still needs to negotiate terms for other onshore loans.
Cinda, a major lender to Sunac in mainland China, is leveraging the Hong Kong petition to strengthen its position in negotiations regarding both onshore and offshore loans. Weighed down by weak sales and limited funding avenues amid a prolonged property downturn, developers have been instructed by authorities to prioritize completing homes for buyers and repaying onshore creditors.
Industry sources indicate that some developers are reconsidering their offshore repayment strategies. Depending on the circumstances, offshore and onshore debts may be managed separately. Some developers may prefer to focus on onshore restructuring, as significant investments in offshore restructuring may not yield favorable outcomes if the company faces liquidation.