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Sunac shares see-saw over its Shaoxing unit's struggle to collect US$619 million in sales proceeds

A local subsidiary of Sunac China Holdings, one of China's most heavily indebted property developers, has come under liquidity pressure, as it was prevented from collecting sales revenues by the government's market-cooling measures.

Sunac's unit in the Zhejiang provincial city of Shaoxing has had to wait for local authorities to register the titles of its apartments, preventing the developer from collecting more than 4 billion yuan (US$619 million) in sales proceeds.

An executive of the Shaoxing unit wrote to local authorities to ask for remedy, adding that Sunac has sold 600 homes in the city, involving the release of about 1 billion yuan in mortgage loans, according to a source familiar with the matter, citing an internal letter by the company.

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Sunac has never asked for help from the Chinese authorities, the developer said in a statement a day later via its official WeChat account. Sunac's shares jumped by as much as 20 per cent on the Hong Kong exchange to as much as HK$15.58, their biggest intraday leap ever, reversing two days of declines.

"The person responsible for the Shaoxing project had accidentally leaked the wording of a draft document seeking support for the online registration," Sunac said, adding that the company "never had, and does not have any need" to submit such a request to local authorities.

Gearing ratio of China's highly leveraged developers. SCMP Graphics alt=Gearing ratio of China's highly leveraged developers. SCMP Graphics

Under mainland China's regulations, sales contracts must be registered on the city government's online platform before a buyer can get a mortgage from a bank. But the Shaoxing government recently suspended registrations in a move designed to keep home prices in check, according to one of the sources, who did not wish to be identified.

He said the local authorities would wait for more low-price homes to be sold to bring down the city's average selling price and avert pressure from the central government to contain the market.

Sunac said demand for its huge, 7.7 billion-yuan Town of Shaoxing Wine project, which combines tourism, commercial and residential elements, has taken a hit as a result. Sales have been tepid as buyers fear they might encounter problems obtaining mortgages.

Sunac China Holdings' chairman Sun Hongbin (centre) during a signing ceremony on July 19, 2017 in Beijing to take over 13 theme parks from Dalian Wanda Group's chairman Wang Jianlin (left). Also joining the takeover was Zhang Li, founder of Guangzhou R&F Properties (right). Photo: Reuters. alt=Sunac China Holdings' chairman Sun Hongbin (centre) during a signing ceremony on July 19, 2017 in Beijing to take over 13 theme parks from Dalian Wanda Group's chairman Wang Jianlin (left). Also joining the takeover was Zhang Li, founder of Guangzhou R&F Properties (right). Photo: Reuters.

The developer said it has collected only 200 million yuan from presale proceeds since it was launched in August.

In the draft letter, which was leaked to the media on Friday, the Tianjin-based developer urged the Shaoxing government to resume and speed up the online registration process, and said it hoped business could soon return to normal.

In response to mainland media reports about the letter, shares of Sunac China plunged 9.37 per cent to close at HK$12.96 on Monday.

In 2017, Sunac was one of China's biggest asset buyers, going on a 100 billion yuan (US$14.9 billion) debt-fuelled shopping spree for theme parks, a video streaming company and a carmaker.

Sources: Northeast Securities and Tianfeng Securities. SCMP Graphics alt=Sources: Northeast Securities and Tianfeng Securities. SCMP Graphics

The developer, chaired by Sun Hongbin, poured in 15 billion yuan in January 2017 to bail out fellow Shanxi entrepreneur Jia Yueting and his LeEco group of companies, which had run up huge debts funding a business that stretched from video streaming and movies to making an electric car.

Six months later, Sunac again stepped in as the white knight to another heavily indebted Chinese property magnate, paying 43.8 billion yuan for 13 tourism-related projects including theme parks from the Chinese tycoon Wang Jianlin, when Dalian Wanda Group was subject to the Chinese government 's scrutiny.

In August of this year, the developer saw its sales drop 30 per cent to 45.06 billion yuan from 2020, according to its filing to the Hong Kong stock exchange.

Source: Sunac company statement. SCMP Graphics. alt=Source: Sunac company statement. SCMP Graphics.

Sunac's liquidity problems come amid the debt crisis at China Evergrande Group, which accumulated more than 1.97 trillion yuan (US$305 billion) of liabilities.

"China's authorities will seek to prevent Evergrande's troubles from hurting the company's homebuyers, suppliers and contractors. However, the company's financial strife could restrict funding access for property companies and Chinese issuers, damage the asset quality of certain banks, and disrupt the real estate market, which is an important driver of economic growth," said Michael Taylor, a Moody's managing director and chief credit officer for Asia-Pacific.

He said Moody's outlook for China's property sector is negative, given the tight funding conditions and a likely slowdown in sales nationwide in the next six to 12 months.

"Investor concerns about the impact of tight regulatory conditions on funding and Evergrande's distress have weakened funding access for developers, and intensified credit polarisation. Financing conditions for weaker developers will remain tight for some time," he said.

China's home prices grew at the slowest pace for eight months in August, as buying confidence took a hit from the government's cooling measures. Evergrande's troubles also weighed on sentiment.

The average price of new homes across 70 major cities rose 0.2 per cent month on month in August, slowing from a 0.3 per cent increase in July, according to figures released by the National Bureau of Statistics on September 15. In February, prices increased by 0.4 per cent, the highest this year.

In a twist of irony, Moody's Investor Services today affirmed the "Ba1" credit rating of Dalian Wanda Commercial Management Group with a "stable" outlook.

"The rating affirmation reflects Wanda's resilient performance under the challenging operating environment. It also reflects our expectation that its liquidity is strong enough to withstand the tight funding condition towards the China property sector," said Kaven Tsang, a Moody's senior vice-president.

Guangzhou R&F Properties, which raided Wanda's assets in July 2017 by picking up 77 hotels for a bargain price of 19.9 billion yuan, last week sold three construction units in mainland China to Country Garden Holdings for 10 billion yuan cash as it too, faced a liquidity crunch.

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 © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.