Shares and bonds of Sunac China fell sharply on Friday following the filing of a liquidation petition against the property developer, raising further concerns over its ability to recover and meet debt obligations despite an offshore debt restructuring in 2023.
The petition was submitted by a unit of China Cinda Asset Management, a state-owned asset management firm, and a hearing has been scheduled for March 19, according to Hong Kong judiciary records published late Thursday. The move comes amid an ongoing crisis in China’s property sector, which has faced liquidity struggles since 2021.
This is not the first liquidation petition filed against a Chinese property developer, with firms like China Evergrande (HK:3333) and Country Garden (HK:2007) also facing similar actions in Hong Kong. However, the involvement of a state-owned entity such as China Cinda adds a layer of complexity to Sunac’s situation, especially as Chinese authorities have repeatedly promised to stabilize the struggling sector. Calls to China Cinda Asset Management were not returned on Friday.
Share Price and Bond Declines
Sunac’s stock in Hong Kong plunged by as much as 29.7% to HK$1.23 in early trading, marking its biggest one-day drop since October 8, according to LSEG data. The stock later recovered slightly but was still down by 21% at midday.
Meanwhile, Sunac’s bonds also saw significant losses. A bond maturing in September 2025 was trading at 10.253 cents on the dollar, down from 12.875 cents on Thursday. Similarly, a September 2032 bond was bid at 7.85 cents, down from 10.75 cents.
In a filing on Friday, Sunac confirmed the liquidation petition and the scheduled hearing date but declined to provide further details.
Weak Home Sales and Restructuring Concerns
The filing comes amid ongoing challenges in the Chinese property market, where weak home sales have raised the prospect of further offshore debt restructurings within the sector. Sunac, once a leading developer in China by sales, was the first to complete a comprehensive overhaul of its $9 billion offshore debt in November 2023 after facing an earlier liquidation petition in 2022, which was later withdrawn.
Reuters reported this week that Sunac has informed some of its offshore creditors that it is unlikely to meet the maturity deadline for its restructured bonds in September 2024 due to uncertainties in the sector’s sales recovery, which could hinder its ability to repay.
“I’m not surprised by the petition,” said Alvin Cheung, associate director at Prudential Brokerage in Hong Kong. Chinese developers are not making much money, while they have to keep repaying a lot of debt.
As of June, Sunac’s total borrowings stood at 277.4 billion yuan ($37.83 billion), and the company is working to restructure an additional $2.1 billion in yuan-denominated bonds.
Impact on Broader Property Sector
The concerns over Sunac’s financial stability have added to the mounting anxiety surrounding the broader Chinese property sector. On Friday, shares in other property developers also saw significant declines, with Shimao Group and Agile Group falling by more than 9%, and CIFI Holdings dropping 8%.
Despite a series of government measures aimed at reviving the property sector, including easing credit conditions and introducing support packages, homebuyer confidence has remained weak, with little sign of recovery in the housing market.
Country Garden, one of China’s largest developers, which defaulted on $16.4 billion of offshore debt in 2023, announced on Thursday that it has proposed a debt restructuring plan. The plan includes a 70% reduction in its debt, offering creditors the option of converting bonds into cash with a 90% haircut or receiving new debt instruments with delayed maturities.
As concerns about defaults spread across the property sector, Sunac’s situation underscores the continuing challenges facing China’s real estate industry.
Related topics:
-
4 Stock Market Indexes: What You Need to Know