Chinese Developer Sunac Misses Bond Coupon Payment When Grace Period Ends

An advertisement of property developer Sunac China Holdings is seen at a residential complex in Shanghai, China March 25, 2018. REUTERS/Stringer

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HONG KONG, May 11 (Reuters) – Some of the bondholders of Sunac China (1918.HK) had not received a coupon payment from the property developer on a $750 million offshore bond at the close of business in Asia on Wednesday, at the end of a one-month grace period. , said two people with knowledge of the matter.

The non-payment of $29.5 million in interest on the October 2023 bond that was due last month could represent the first offshore default on a public bond by the country’s third-largest developer by sales.

The sources declined to be identified as they were not authorized to speak to the media. Sunac declined to comment.

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A default could trigger cross-default clauses on all of the sponsor’s $7.7 billion of obligations in international capital markets.

Sunac has missed four dollar coupon payments totaling $104 million since April, three of which are still in grace period.

The company said in March it was discussing debt solutions with offshore creditors after downgrades by global rating agencies, as well as seeking payment extensions with onshore bondholders.

Sunac is the fourth largest issuer among Chinese developers after China Evergrande Group (3333.HK) and Kaisa Group (1638.HK), and top seller Country Garden (2007.HK), which is still considered financially strong.

China’s property sector has been hit by a series of defaults on offshore debt securities, highlighted by Evergrande, as well as on bond exchanges, with Zhongliang Holdings (2772.HK) the latest to extend payments .

The debt crisis has spread to the country’s vast real estate market, with new home sales and construction plummeting as financing tightens and potential buyers balk, fearing some projects may be stalled.

Still, with many Chinese property bonds now trading below 30 cents on the dollar, the sector’s leverage issues have largely been priced in, market participants said. The Sunac bond in question was trading at 19.386 cents Wednesday morning, according to data from Duration Finance.

“The impact of Sunac’s default on the financial market will be less than that of Evergrande and Kaisa,” said Edwin Fan, analyst at Fitch Ratings. Fitch downgraded Sunac to “CC” in late March before withdrawing the rating last month.

“(But) it shows that many real estate developers will have to do an onshore and offshore debt swap,” Fan added.

Executives of two property companies told Reuters the market was somewhat confident that Sunac would be able to repay its debt with state support, and now its failure reflects a higher probability than a few other major developers, such as Shimao Group (0813.HK), may miss their next obligations.

“The outstanding amount these companies hold represents a significant portion of China’s total high-yield real estate bonds and they are widely held by investors, including some passive funds,” one of the executives said.

“It will only hurt confidence further and investors will never touch Chinese property bonds again.”

Shimao did not respond to a request for comment.

In March, Fitch estimated that Sunac had up to $2.8 billion in offshore debt that could become immediately due due to creditors demanding prepayments after downgrades by several notches by rating agencies.

The company has an additional 11 billion yuan in onshore and offshore capital markets debt maturing this year.

Sunac has endeavored to raise funds by issuing new shares and divesting assets.

On Tuesday, media Cailianshe reported that the developer was in talks with potential buyers to sell a 51% stake in the world’s largest indoor snow park, currently under development in Shenzhen.

It has sold assets to state-owned peers including Beijing Capital Group and Zhuhai-based Huafa Group for more than 20 billion yuan, local media reported earlier this year, and a source told Reuters that he was in talks with four major Chinese asset managers, including Cinda. on project cooperation. Read more

If Sunac defaults, it could further hammer already weak buyer confidence in China, executives of other developers have warned. Sunac is a major company in China and known for building mid to high end properties.

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Reporting by Clare Jim, Xie Yu, Scott Murdoch in HONG KONG, Jason Xue in SHANGHAI; Editing by Sumeet Chatterjee and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.


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Elaine R. Knight