Sunac China unveils sweetened restructuring offer for US$9.1 billion in offshore debt in latest move by a developer

Debt-troubled Chinese property developer Sunac China Holdings has sweetened a restructuring offer to holders of US$9.1 billion of its offshore debt as it seeks to get back on its feet as soon as possible.

The company has reached an agreement with a group of offshore creditors representing over 30 per cent of its outstanding debt, it said in a filing to Hong Kong's bourse on Tuesday, becoming the latest of China's big developers to propose a restructuring.

"The contemplated restructuring is intended to provide the company with a long-term, sustainable capital structure, allow adequate financial flexibility and sufficient runway to stabilise the business, and protect the rights and interests, and maximize value, for all stakeholders," chairman Sun Hongbin said in the filing.

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Sunac China called on other debt holders who had not consented to the company's previous restructuring proposal to agree to the latest offer.

The Beijing-headquartered company has proposed exchanging US$1 billion of offshore debt into nine-year bonds that are convertible into its shares.

The conversion price is HK$20 a share during the first 12 months after the restructuring takes effect. After that, they will no longer carry any conversion rights and will be redeemed when the new bond matures.

Alternatively, debt holders can elect to swap their debt claims into a zero-coupon, five-year bond, subject to a cap of US$1.75 billion.

This new bond is convertible to the company's shares at HK$10 each within six months of the effective date of the restructuring. The conversion is subject to a cap of 25 per cent of the outstanding value of the new bond.

Other holders of the new bond can choose to convert their holding into shares later, but the conversion price - not less than HK$4.58 - will vary according to the average market price over 90 trading days prior to notification of conversion. The remaining holders of the new bond must convert their debt into shares when it matures.

The move follows a US$19.15 billion debt restructuring plan unveiled last week by China Evergrande Group, which includes proposals to swap its creditors' offshore debt with shares of some of its Hong Kong-listed affiliates, such as Evergrande NEV.

Since Beijing abandoned its zero-Covid policy, the mainland's economy has begun to spring into life, and pro-growth bureaucrats are preparing to pump in more liquidity to grease activity. Green shoots are emerging from the US$2.6 trillion property sector, helping sentiment in the bond market.

Elsewhere, developer Logan Group said on March 13 that talks to reorganise its US$6 billion of debt will commence "now", while Zhenro Properties expects a preliminary proposal to restructure its US$540 million debt to be delivered this month.

Sunac's new bond holders also have the option to exchange their debt claims into shares of its property management unit Sunac Services. The exchange price will be 2.5 times the average over 60 trading days, subject to a minimum of HK$17 per share.

Under the latest restructuring proposal, for those creditors that choose not to exchange their debt into shares, their debt will be swapped into new senior notes that will mature in two and nine years, with different interest rates respectively.

Sun Hongbin, the developer's controlling shareholder, has agreed to convert US$450 million of shareholder loans into its shares. The property tycoon founded the home builder in 2003.

Given that the latest proposal has already received 30 per cent support from creditors, it should eventually secure over 75 per cent support, a source familiar with the deal said.

Back in December, the company proposed to convert US$3 billion to US$4 billion of debt into the company's shares, and offered to exchange the rest of the outstanding debt into bonds with maturities of two to eight years.

Sunac, China's fourth-biggest developer by sales in 2021 and 11th in 2022, officially defaulted in May after failing to pay US$29.5 million in interest on a US-dollar bond earlier, falling into default after a 30-day grace period.

Shares of the developer have not traded since April 2022 after it failed to publish its annual results by the end of March, as required by the Hong Kong stock exchange.

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 © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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