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Sunac China, a property developer facing difficulties, announced last week that it has come to an agreement with a
group of creditors outside of China to restructure its debt worth $9 billion. Sunac is among the major property
developers in China that struggled last year due to a debt crisis in the sector.
Last week, China Evergrande Group, a property developer with the highest debt in the world, declared its intention to
restructure its offshore debt worth $22.7 billion. This move has the potential to set an example for other struggling
companies in the same industry and influence investors’ perception of China’s troubled real estate market.
Sunac, a company based in Beijing, has announced plans to convert part of its debt into convertible bonds backed by
its Hong Kong-listed shares. Additionally, they will issue new notes with maturities ranging from two to nine years,
with interest rates of 5% to 6.5%. Sunac has allowed an option for the company to extend the maturity of the first two
tranches of new notes by an additional year. Creditors have the option to convert some of their debt into another
convertible bond or shares in Sunac’s property management unit, Sunac Services, at a lower conversion price.
Sunac will pay a consent fee of 0.1% of the debt holding to creditors who show support before April 20, and the
restructuring is set to take effect on September 30. Sunac’s shares will remain suspended since they have not traded
since the release of the 2021 financial reports. Sunac lengthened the maturity period of its onshore bonds worth 16
billion yuan ($2.33 billion) earlier this year by an average of 3.5 years.
Last week Sunac China announced, in a filing to Hong Kong’s bourse, that a group of offshore creditors representing
more than 30% of its outstanding debt had joined forces, making it the latest major Chinese developer to suggest a
restructuring. Chairman Sun Hongbin stated in the filing that the restructuring proposal was aimed at providing the
company with a sustainable capital structure, financial flexibility, and enough time to stabilize the business, while also
safeguarding the interests and maximizing the value for all stakeholders. Sunac China urged other debt holders who
had not yet agreed to the previous restructuring proposal to accept the new offer.
During the initial 12-month period following the restructuring, the shares may be converted at a price of HK$20 per
share. However, once this period is over, the conversion rights will no longer be valid, and the shares will be
redeemed when the new bond reaches maturity. The newly Issued bond can be converted into company shares within
six months of the restructuring’s effective date, with each share valued at HK$10. However, this conversion is limited
to 25% of the new bond’s outstanding value.
Other holders of the new bond have the option to convert their holdings to shares at a conversion price of not less than
HK$4.58, which will be determined by the average market price over the 90 trading days before the conversion
notification. The remaining holders of the new bond are required to convert their debt into shares once it reaches
maturity.
China Evergrande Group has revealed a debt restructuring plan worth US$19.15 billion, which involves exchanging
its offshore debt with shares of some of its Hong Kong-listed affiliates like Evergrande NEV. This plan is aimed at
addressing the company’s financial woes.
As China has shifted away from its zero-Covid policy, the country’s economy has shown signs of growth, and
officials are planning to inject more liquidity to boost activity. This growth is also reflected in the property sector,
which is worth US$2.6 trillion, and is helping to improve market sentiment towards bonds
Investors who hold Sunac’s new bonds have the choice to convert their debt into shares of the company’s property
management unit, Sunac Services. The exchange rate will be calculated as 2.5 times the average over 60 trading days
but cannot be less than HK$17 per share.
Alternatively, under the company’s latest restructuring proposal, creditors who decide not to convert their debt into
shares will have their debt swapped for new senior notes. These notes will have varying interest rates and will mature
in either two or nine years.
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