Sunac China may miss instalment payment on 4 billion yuan bond as lockdowns pile pressure on beleaguered Chinese developer

·3 min read

Sunac China Holdings may miss an instalment payment on a 4 billion yuan (US$598 million) onshore bond because of a liquidity crunch, in a fresh sign that China's pandemic curbs are plaguing the already beleaguered property developer.

Sunac Real Estate, a wholly-owned subsidiary of the country's fourth-largest developer, said in a statement on Friday evening that it was not able to arrange sufficient funds to make the payment due on June 30 after sales by its parent in the first five months of this year plunged 59 per cent.

"The company will work out an adjusted payment plan based on the financial conditions," the statement said. "We will keep communicating with the bondholders."

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Sunac extended the 4 billion yuan bond - which was originally due on May 15 - by 18 months from April 1 after reaching an agreement with creditors.

It completed the first instalment payment of 400 million yuan, or 10 per cent of the principal, on May 15, and was supposed to repay another 400 million yuan in the second instalment on June 30. Sunac Real Estate said the cash for the second instalment would not be ready before the deadline.

"Lockdowns and standstill orders [to battle the Covid-19 pandemic] in cities such as Shanghai have exacerbated a sluggish property market and ratcheted up pressure on those debt-ridden developers," said Wang Feng, chairman of Shanghai-based financial services group Ye Lang Capital. "The vicious cycle will continue now that business activities in some major cities have not returned to full normality yet."

Once viewed as among the healthiest firms in China's 18.2 trillion yuan property market, Sunac China reported home contract sales of 98.8 billion yuan from January to May, compared to 242 billion yuan a year earlier.

The next instalment worth 600 million yuan for the yuan-denominated bond is scheduled to be paid on September 30.

Sunac is also working on a restructuring of its offshore debts, aiming to finalise this in the next two to three months, people familiar with the situation told the South China Morning Post. It is also in talks with some state-owned companies about strategic investments in the firm.

In May, Sunac missed the deadline for a coupon payment on a US$742 million offshore bond and said it could not make payments coming due on other bonds, joining the list of defaults by China's cash-strapped property developers.

Sunac is not the only cash-strapped developer that is under pressure to repay debts, particularly after the recent lockdowns across the country.

Debt-ridden Guangzhou R&F Properties last week sought the consent of investors to extend 10 of its offshore bonds worth US$5.16 billion due between now and 2024, last week, while Chinese state-backed Greenland Holdings was downgraded to "selective default" by ratings agency S&P Global on Wednesday, after the Shanghai-based property developer extended a US$500 million bond by one year.

"The business environment for developers is still very challenging. Supportive measures from regulators are helpful but not enough," said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities International. "We think the central government needs to take more measures to resolve developers' liquidity problems in the near term and to boost the property sector."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.