On 28 March, Sunac China announced it has reached an agreement with the major offshore creditor group (representing over 30% of the USD 9.05 billion existing debt), and hereby published the finalized restructuring plan and asked other bondholders to participate in the restructuring support agreement.
This scheme is applicable to all existing Sunac’s USD bonds and requires 75% creditors’ approval to pass. As it is not an exchange offer but a restructuring plan through the court, it should be binding on all bondholders shall it becomes effective.
The deadline for participating in the restructuring support agreement is 20 April 2023, and the participated bondholders that hold the bonds until record date will receive a consent fee of 0.1% of the bond’s face value.
Because of the large amount of information included in the term sheet, this article will only summarize some of the key terms, while the remaining details cannot be fully covered.
(The following information is for reference only and the details are subject to the original announcement.)
The Restructuring Plan
Sunac’s restructuring plan will cover all USD bonds and other private debts, and the Group will be able to include other debts in the plan upon the approval from the major creditor group. The expected restructuring effective date is 30 September 2023, and the total scheme creditors’ claims (including the principal and accrued interests up to the restructuring effective date) is approximately USD 10.24 billion.
Creditors can receive a set of different debt and equity-related instruments in the plan, with the details listed below (see Table 1).
Table 1: Debt and Equity-related Instruments
| Instrument | Maximum Issue Amount | Allocation Method |
| Sunac China Convertible Bonds | USD 1 billion | Mandatory |
| Sunac China Mandatory Convertible Bonds | USD 1.75 billion (can be increased) | Optional |
| Shares of Sunac Services | 14.7% of Sunac Services outstanding shares | Optional |
| New Bonds | Scheme creditors’ claims minus the issuance/exchange amount of above instruments | Optional |
| Source: Company Announcements, iFAST Compilations Data as at 28 March 2023 | ||
In simple, every creditor can receive the Convertible Bonds on a pro-rata basis, and is able to flexibly assign the remaining debt amount to the other 3 instruments. However, if the amount electing the Mandatory Convertible Bonds or shares of Sunac Services exceeds the cap, the Group will allocate the excess amount to the New Bonds on a pro-rata basis.
Sunac China Convertible Bonds
Sunac China Convertible Bonds will be allocated to every creditor. The details are listed below (see Table 2).
Table 2: Convertible Bonds
| Information of Convertible Bonds | |
| Tenor | 9 Years^ |
| Type | Cash repayment of principal and interests at maturity |
| Coupon Rate | First 3 years: - 1% payment in kind From 4th to 9th year: - 1% payment in kind - 1% payment in cash (payable semi-annually) |
| Conversion Period | 12 months from the later of below dates#: - Restructuring effective date - The date that Sunac China resumes trading on HKEX |
| Conversion Price | HKD 20 per share* (4.37x of the last trading price) |
| Minimum Denomination | USD 1,000 |
| ^ From the earlier of 30 September 2023 and the restructuring effective date # The bond can no longer be exchanged into shares after the end of conversion period * Adjustable upon several shares split or placement events | |
| Source: Company Announcements, iFAST Compilations Data as at 28 March 2023 | |
Sunac China Mandatory Convertible Bonds
Creditors can opt for receiving Sunac China Mandatory Convertible Bonds. The details are listed below (see Table 3).
Table 3: Mandatory Convertible Bonds
| Information of Mandatory Convertible Bonds | |
| Tenor | 5 Years^ |
| Type | Mandatory conversion into shares at maturity |
| Coupon Rate | Nil |
| Conversion Method | Bondholders submit conversion notices in respect of all or part of the holdings |
| Conversion Period | First Conversion 10 business days from the later of below dates: - Restructuring effective date - The date that Sunac China resumes trading on HKEX Second Conversion 10 business days from 6 months after the restructuring effective date Ordinary Conversion 10 business days from the second, third and fourth anniversary Trigger Conversion 10 business days from the date when the 90 trading days volume-weighted average price (“VWAP”) first exceeds a certain level after the first anniversary |
| Conversion Format | First Conversion A maximum of 25% of the bond issue amount can be converted, and will be allocated on a pro rata basis if the amount exceeds the cap (same below) Second Conversion If the first conversion amount does not reach the maximum, a second conversion will be initiated and the maximum of total conversion is still 25% of the bond issue amount Ordinary Conversion The maximum convertible amount on the second, third and fourth anniversary is 40%, 80% and 100% respectively of the "remaining amount" (bond issue amount less the first and second conversion amounts) Trigger Conversion Conversions will be triggered if Sunac China share price reaches HKD 12, 13 and 16, and the maximum convertible amount is 40%, 70% and 100% respectively of the "remaining amount" |
| Conversion Price | First and Second Conversion HKD 10 per share* (2.18x of the last trading price) Other Conversions The 90 trading days VWAP before the first day permitted to deliver such conversion notices (the minimum conversion price is HKD 4.58 per share) |
| Minimum Denomination | USD 1,000 |
| ^ From the earlier of 30 September 2023 and the restructuring effective date * Adjustable upon several shares split or placement events | |
| Source: Company Announcements, iFAST Compilations Data as at 28 March 2023 | |
It is worth noting that a USD 450 million Sunac’s shareholder loan can be proportionally converted into shares within 60 days after each conversion of the Mandatory Convertible Bonds, at a conversion price identical to the corresponding bond conversion price.
Shares of Sunac Services
Creditors can opt for receiving shares of Sunac Services, with a conversion price of 2.5 times of the 60 trading days VWAP before the record date, which is subject to a minimum of HKD 17 per share.
The record date (the person who holds the debt instruments on that date is entitled to vote in scheme meeting) is not announced yet.
New Bonds
Creditors can also opt for receiving 8 new bonds. The details are listed below (see Table 4).
- Coupon shall be payable semi-annually
- For the first year, the coupon can be paid in kind
- For the second year, at least 2% of the coupon shall be paid in cash
- From the third year, all coupon shall be paid in cash
- The coupon rate per annum shall step up by 1% if any portion of coupon with respect to such interest payment period is paid in kind
Table 4: 8 New Bonds
| Issue Amount | Coupon Rate | Tenor | |
| Tranche A | USD 500 million | 5% / 6%* | 2 Years^ (Can extend for one year) |
| Tranche B | USD 500 million | 5.25% / 6.25%* | 3 Years^ (Can extend for one year) |
| Tranche C | USD 1,000 million | 5.5% | 4 Years^ |
| Tranche D | USD 1,500 million | 5.75% | 5 Years^ |
| Tranche E | USD 1,500 million | 6% | 6 Years^ |
| Tranche F | USD 1,000 million | 6.25% | 7 Years^ |
| Tranche G | Scheme creditors’ claims minus the issue amount of all the above debt and equity-related instruments (with a cap of USD 1,000 million) | 6.5% | 8 Years^ |
| Tranche H | Scheme creditors’ claims minus the issue amount of all the above debt and equity-related instruments (no cap) | 6.5% | 9 Years^ |
| * If Sunac chooses to extend for one year, the coupon rate in the last year will increase ^ From the earlier of 30 September 2023 and the restructuring effective date | |||
| Source: Company Announcements, iFAST Compilations Data as at 28 March 2023 | |||
Sunac will also provide credit enhancement measures for these 8 new bonds, including the remaining shares of Sunac Services after the exchange, specified asset package and other specified asset package. According to our understanding, the specified asset package may include several Cultural Tourism City projects and exhibition centers in Mainland China, while the other specified asset package may include the shares of Wanda and Ziroom, the Dalian project and the Wuhan project that are still held by the Group.
Subject to certain terms, the Group should use 100%, 50% and 90% of the net proceeds attributable to the Group from the disposal of the shares of Sunac Services, the items in specified asset package and the items in other specified asset package respectively, for the cash sweep of the bonds. Other than the repayment of the interests and principal become due, it can also make tender offers to repurchase the bonds at a price below par, with the remaining cash is applicable to redeem the bonds at par.
Commentary
In Sunac’s proposal, each creditor will first have about 10% of the claims replaced with Sunac China Convertible Bonds. At the conversion price of HKD 20 per share, the loss is about 75% even if we use the closing price of Sunac before the trading halt (HKD 4.83 per share). However, if the conversion does not take place in the first 12 months, it is required to take almost 9 years to recover the principal, and the coupon rate of the bond is so low. Therefore, we think many creditors will choose to accept this form of haircut.
Next, the conversion price of the first and second conversions of the Mandatory Convertible Bonds in the first year is HKD 10 per share, which the magnitude of loss is smaller. However, it is important to note that the maximum shares can be exchanged from these two conversions are only 25% of the bond issue amount. Taking into account the subsequent share dilutions and the post-conversion sell-off, the actual value of the shares exchanged from the remaining 75% of the bond may not be higher even though the minimum conversion price is HKD 4.83 per share, not to mention about the longer waiting time.
As for Sunac Services, there is no share dilution in this plan, but since its minimum exchange price is HKD 17 per share and 5.2 times higher than the closing price on 29 March, the overall loss also reaches 80% according to the current price.
Although all 3 equity-related instruments are expected to suffer more than 80% loss after the share conversion/exchange, the higher visibility of the value of Sunac Services shares and the ability to quickly cash out, will make it more attractive than the Sunac China shares, which are currently suspended and ready to be diluted.
Of course, creditors can also choose to exchange for the New Bonds, which we believe is the most popular option, given that the bonds are not too shabby in terms of coupon rate and tenor, in addition to the credit enhancement measures supported by the Group’s remaining ownerships in Sunac Services and its commercial projects. If creditors believe that Sunac can gradually repay the bonds in cash in next 2 to 9 years, the New Bonds should appear as a better option.
Last but not least, since the current price of several Sunac’s bonds is above $20, the expected recovery is approximately the same as converting or exchanging into shares of Sunac China and Sunac Services. Bondholders should keep an eye out as Sunac mentioned that it will approve its 2022 results this Friday and should be announcing them afterwards. We believe this is in preparation for the trading resumption in Sunac China's shares, which may result in changes in bond price.
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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