- On May 12, Sunac China issued an announcement that the coupon of its USD bond "SUNAC 7.950% 11Oct2023 Corp (USD)" (amounting to approximately USD 29.5 million) was still outstanding after the end of the grace period, and the bond was officially in default. In addition, the Group has also engaged Houlihan Lokey as its financial advisor to communicate with offshore creditors regarding the restructuring plan.
- Although this outcome is in line with market expectations, it is undoubtedly still disappointing. We believe that Sunac may have made its decision after witnessing Evergrande’s debt crisis where a default is inevitable despite making it through a couple of coupon payments, if it could not improve its operating performance in the near future.
- We published the article "Sunac China – Looking For A Way Out" to update the Group’s recent operating condition and sales performance last month. As of today, the Group has yet to release its last year annual result. With the resurgence of COVID-19 in Mainland China and the further crash in property markets across different cities, Sunac's sales in April plunged by 75% YoY to 13.6 billion yuan only, which was worse than the 59% average decline of the top 100 developers.
- Recently, there is news that Sunac is considering to roll over its offshore debt and introduce strategic investors such as state-owned enterprises and central government-owned enterprises. This is similar to Evergrande's approach, and is a common practice in debt restructuring schemes. On the other hand, the Group has already extended some of its onshore bonds, including the 18-month extension of "20 Rongchuang 01" in early April. Recently, it is reported that Sunac has already prepared the funds to repay the first 10% of the bond principal on May 15, which is around 400 million yuan.
- If the above rumor turns out to be true, Sunac does have a problem of prioritizing onshore bond repayments, and we also noticed another 10% principal of the second phase will mature on June 30. Therefore, the Group needs to communicate with its offshore creditors as soon as possible and reach a preliminary consensus before the next maturity date of the USD bond "SUNAC 7.250% 14Jun2022 Corp (USD)". Since the Group is already in default, we should keep an eye on whether it will make an extension proposal before the bond’s maturity.
- Overall, the real estate sector crisis is still far from over, but we might see the suppressed demand as a result of pandemic to unleash in the second half of this year. Given the goal of preserving GDP growth by the Chinese Government, it is unlikely that industry sales will continue to experience such a large magnitude of decline. Considering Sunac’s strong execution ability, it is still a chance for a comeback in the future, and we think investors may consider waiting for further developments.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in SUNAC 5.950% 26Apr2024 Corp (USD), and the analyst who produced this report holds a NIL position in the abovementioned securities.
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