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Sunac China Holdings Ltd has achieved a significant milestone by securing creditor approval for its $9 billion offshore debt restructuring plan. This marks a pivotal moment as it becomes the first major Chinese property developer to gain such approval amid a challenging environment.
The backdrop for Sunac's debt restructuring effort is the liquidity crisis that has engulfed the Chinese property sector since 2021, leading to a series of defaults by developers and causing turmoil in global markets. Against this backdrop, Sunac's success in obtaining creditor approval is closely watched by investors and industry observers.
The approval came with resounding support, as 98.3% of bondholders by value who participated in the vote gave their consent to Sunac's proposed restructuring plan. This achievement sets the stage for a critical court hearing scheduled for October 5 in Hong Kong, where the plan will be further scrutinized.
Sunac had previously reached an agreement in March with a consortium of offshore creditors to restructure its $9 billion debt load. The plan involves converting a portion of the debt into convertible bonds, backed by the company's Hong Kong-listed shares, as well as issuing new notes with maturities ranging from two to nine years.
While Sunac had reported support from holders of 87% of its outstanding offshore debt by July, the formal approval now marks a significant step towards implementation.
In another development, Sunac announced an increase in the cap for mandatory convertible bonds from $2.2 billion to $2.75 billion. This adjustment was made in response to the overwhelming interest expressed by scheme creditors, indicating their willingness to participate in the debt restructuring.
Despite the challenges faced by the Chinese property sector, Sunac reported a positive financial performance for the first six months of the year. The company's revenue showed a notable increase of 20.5%, reaching 58.47 billion yuan ($8.02 billion), while its losses decreased by 18.1% to 15.37 billion yuan.
China has introduced measures aimed at reviving the property sector, a critical component of its economy, which accounts for approximately a quarter of its GDP. However, analysts suggest that additional measures may be required to fully restore the sector's health.
Sunac's successful restructuring is in contrast to many other Chinese developers who have struggled to reach agreements with offshore creditors. Notably, Country Garden, another major developer, faces a liquidity test with a $15 million interest payment linked to an offshore bond, having narrowly avoided default earlier in the month.
While Sunac remains cautiously optimistic about the positive impact of its debt restructuring on cash flow over the next two years, it acknowledges the presence of "material uncertainties" in executing steps to restore cash flow.
Despite the challenges and fluctuations in its share price, which fell by 38.9% over the course of the year, Sunac's achievement in gaining creditor approval for its debt restructuring plan is a significant development in the evolving landscape of China's property market.
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