After an 18-month effort, Sunac China Holdings completed the entire process of overseas debt restructuring, becoming the nation's first large real estate enterprise to wrap up a domestic and overseas debt restructuring. This landmark development provides a crucial demonstration for other debt-burdened developers, experts said on Tuesday.
Sunac announced on Monday night that all conditions for its overseas debt overhaul had been fulfilled and officially took effect from Monday. The company restructured about 90 billion yuan ($12.65 billion) in troubled debt, reduced its total debt by $4.5 billion, and is poised for an improvement in its operational fundamentals.
Since last year, Sunac has been recognized within the industry as an example of proactive self-rescue. It quickly sensed the changing environment and took proactive measures such as promoting sales, disposing of assets and obtaining equity financing. The controlling shareholder, Sun Hongbin, also promptly provided a $450 million interest-free loan to the company, according to media reports.
Creditors approved its offshore debt restructuring plan in September, the first of its kind among major Chinese housing developers. Since the second half of 2021, more than 50 listed real estate enterprises have initiated debt restructuring processes.
This restructuring indicated breakthroughs for real estate companies in debt disposal and risk mitigation, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, said in a note sent to the Global Times on Tuesday.
Debt restructuring is a crucial measure in the real estate sector for risk resolution. Such efforts are vital because they influence the market's judgment regarding the survival prospects of troubled developers.
"The more good news related to debt restructuring, the clearer the indications are that the real estate market and companies are stabilizing," Yan said.
Sunac's asset-liability situation is relatively under control and a substantial amount of its funds is restricted in regulatory accounts and cannot be mobilized arbitrarily, Hui Jianqiang, a veteran industry analyst, told the Global Times on Tuesday.
"Due to the company's situation, coupled with support policies offered by various local Chinese governments, it was relatively easy for the company to obtain the consent of its creditors and then achieve restructuring," Hui said.
The news drove up Chinese real estate shares on Tuesday. Sunac's shares jumped 12.02 percent to HK$2.61 ($0.33) at the close in Hong Kong. Risesun Real Estate Development Co's share price hit its daily limit and surged 10.27 percent in Shenzhen.
Behind the general rise of share prices, there was another stimulant: Bloomberg reported on Monday that Chinese regulators are drafting a list of 50 developers eligible for a range of financing, "the nation's latest effort to put a floor under the property crisis."
"The list, which includes both private and state-owned developers, is intended to guide financial institutions as they weigh support for the industry via bank loans, debt and equity financing," the report said, citing anonymous sources.
The market expects that more support policies are on the way for the sector, experts said.
The reported "whitelist" suggests that the number of involved financial institutions will increase and bank lending will grow. The threshold for real estate firms to be put on such lists may slightly decrease, further expanding the coverage of support, Yan said.
The central financial work conference that concluded in October also mentioned the property sector. The meeting stressed that authorities should improve the supervisory system and capital supervision of real estate enterprises, improve the macro-prudential management of real estate finance, and meet the reasonable demand of real estate firms equally, regardless of their type. It also called for building the new development model of the property market.
Many government policies have been announced this year to ease the debt risks of the sector, and with increasing collaborative efforts, the risk of real estate debt is gradually being addressed, experts said.
"Meanwhile, the real estate cycle is a lengthy one, and the market should not be too hasty in expecting rapid progress in developers' debt restructuring," Hui said, because more time is needed for the industry's recovery.
China has implemented a prudent policy regarding individual mortgages, and the spillover impact of real estate market adjustments on the financial system is manageable, People's Bank of China (PBC) Governor Pan Gongsheng said at a forum on November 8.
The PBC will actively cooperate with industry regulators and local governments to ensure the stable and healthy development of the real estate market, and efforts will be made to reduce risk levels in the sector and guard against the spillover of risks from the housing market, Pan vowed.
