- In the first quarter of 2022, Sunac recorded a total contracted sales of 72.4 billion yuan, down 38% YoY (peers average: 47%), with the average selling price down 10% to 13,570 yuan per sq.m; In March, its total contracted sales was 22.1 billion yuan, also down 62% YoY (peers average: 53%).
- According to CRIC’s ranking, the Group still sits at number four on the list by sales amount. With the attributable sales ratio maintained at a 60% level, we expect the monthly cash collection amount (after deducting regulatory pre-sales proceeds) should be less than 10 billion yuan.
- Because Sunac cannot publish its annual result by the March 31 deadline, we do not have the information on its latest financial performance. It is reported that the Group had around 70 billion yuan cash on the consolidated level at the end of last year. But taking references from other developers, we believe more than half of the cash is regulatory pre-sales proceeds, while the remaining is owned by the subsidiaries or project companies, so the holding company cannot use it for debt repaying purposes.
- In mid-March, Sunac had a problem repaying a 4 billion yuan onshore bond “20 Rongchuang 01” that can be put back on April 1. The Group originally got the consent from investors to not use the put option, and will add a new put date in April 2023. However, a Chinese bank that owned around 1 billion yuan of the bond decided to exercise the put option later on, which caught Sunac off guard.
- After a series of negotiations, Sunac obtained 82% of the investors’ approval to launch a new proposal. The bond principal and coupon will be repaid over the next 18 months in seven installments, with a coupon rate maintained at 4.78%. Sunac’s Chairman Sun Hongbin will provide an unlimited joint liability guarantee for the proposal, and Qingdao’s ‘A Tour A Life’ project and Zhengzhou’s Cultural Tourism City will be used as credit enhancement tools.
- After the successful extension of the abovementioned bond, the Group still have six bonds that will be maturing or being puttable in the remaining of the year, with a total amount exceeding 16 billion yuan. What’s more concerning, is that Sunac may have around 2 to 3 billion USD of offshore private debts that are unknown to the public. It is likely that the put options for all of them will be triggered following Fitch’s credit downgrade. As a result, Sunac must communicate with these creditors to seek a solution.
- Meanwhile, Sunac did not show any sign of adopting the ‘lying flat’ strategy. We got a quick response from its investor relations. Its Chairman Sun Hongbin is actively involved and shows a high willingness to repay debts as well. Apart from acting as a guarantor himself and lending out 450 million USD as a non-interest bearing loan, he also stepped up the efforts to implement equity financing and dispose of assets. This includes two share placements to obtain a total of 11.9 billion HKD, the disposal of equity ownership in KE Holdings for 1.08 billion USD, a transferal of commercial property management business to Sunac Services for 1.8 billion yuan, and sales of over 12 property projects in locations such as Shanghai, Hangzhou and Guangzhou since last November.
- The above actions showed that the Group is able to maintain its strong execution ability, but it is still undeniable that its short-term liquidity is extremely tight. On April 12, it was reported that Sunac did not distribute the coupons for the USD bond “SUNAC 7.950% 11Oct2023 Corp (USD)”, with an amount of 29.5 million USD.
- Considering the small amount of this missing coupon payment, we believe the Group was not completely out of cash, but would like to make use of the 30-day grace period to organize a holistic plan for future debt repayment.
- Currently, Sunac’s USD bond prices are around $20 to $35, despite that the possibility of an exchange offer for its bond due in June is increasing, we think it is a more appropriate choice for investors to hold and wait for further developments at this moment.
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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