Sunac recasts debt, sets tone for troubled property developers

Embattled Chinese property developer Sunac China Holdings Ltd said it has met the conditions for debt restructuring with an effective plan, making it the first large Chinese developer to complete such a process.

The restructuring buys Sunac time to improve its business situation and also provides a good reference for other Chinese property developers in terms of debt disposal and risk resolution, said analysts.

About $10 billion of debt will be converted into six new notes, mandatory convertible bonds, convertible bonds and shares in its subsidiary Sunac Services Holdings Ltd, for a consideration of $5.7 billion, $2.75 billion, $1 billion and $775 million, respectively, Sunac said in a statement Monday night.

The converted new notes, mandatory convertible bonds and convertible bonds were listed on the Singapore Exchange on Tuesday, and Sunac Services' shares have been transferred to the creditors concerned, the company said.

In January, the developer completed the restructuring of its domestic debt of around 15.4 billion yuan ($2.15 billion), with an overall extension period of three to five years.

Sunac's restructuring will cut about 45 percent of its total overseas public market debt, totaling $4.5 billion, and can provide the company with a buffer period of two to three years for overseas debt.

The restructuring has also led to an improvement in Sunac's stock market performance. Its shares closed at HK$2.61 (33 cents) on Tuesday, up 12 percent.

To better adapt to China's current relatively sluggish property market, many listed property developers have been actively taking steps to restructure their debts.

Sunac is the first one among them to complete all processes of domestic and overseas debt restructuring, with an overall restructuring scale of around 90 billion yuan. The entire process took 18 months.

It can serve as a good reference for other developers, said analysts.

"However, the completion of its debt restructuring can only temporarily alleviate Sunac's pressure of rigid debt repayments and associated risks are not fully discharged yet. Sunac must capitalize on the window period of debt resolution and should not let its guard down," said An Xinhua, director of Beijing Loyalty & Talent Law Firm.

In the future, Sunac can get back on track by resuming normal operations as soon as possible, said Liu Shui, director of corporate research at the China Index Academy.

"Sunac must further ensure smooth construction of its projects and their timely delivery, thus revitalizing existing works. Besides, it needs to promote payment collection by speeding up sales and should improve its organizational structure," Liu said.