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Last week, Sunac China Holdings Ltd, a real estate developer based in China, saw more than a 50% decrease in its market value upon the resumption of trade after being suspended for over a year. The decline occurred following the release of the company’s financial results and its agreement on a debt restructuring plan. The drop in share prices occurred one day after the company had announced to the Hong Kong stock exchange that it would resume trading and implement the debt restructuring plan.
The share price of the company dropped by approximately 60% during the day, reaching a low of HK$1.86 which was the lowest level seen since January 2012. The shares closed the day at HK$2.04, which represented a decline of 55.5% and resulted in a reduction of HK$13.84 billion ($1.8 billion) in the company’s market value.
After the market closed, an official statement released by the company announced that Chi Xun and Shang Yu resigned as executive directors on April 13 due to a restructuring of their work duties and responsibilities within the group. The company stated that there were some matters regarding the resignations that shareholders needed to be informed about.
According to experts the fall in the company’s stock price was in line with the broader decline in the property sector that had occurred during the year of the suspension. Insiders see the reopening of trading for Sunac China Holdings Ltd as a positive indication that the company meets the necessary conditions for trading. The company is one of several Chinese real estate developers that defaulted during the past year due to the debt crisis that affected the property sector.
In March this year, Sunac announced that it had made deals with offshore creditors to transform its debt into fresh notes and convertible bonds, which would be supported by its Hong Kong-listed shares and its subsidiary Sunac Services’ shares. During this time, the company also released its overdue interim results for 2022, revealing a core loss of 11.06 billion yuan ($1.61 billion).
While Sunac and China Evergrande Group have managed to restructure their debt and delist, other property developers face challenges in the industry’s uneven recovery. An example in recent times is the decision made by the Hong Kong stock exchange to call off the listing of Cinic Holdings, a Chinese developer, because it couldn’t meet the requirements for trading resumption in time.
In the larger context of the economy, the actions taken by authorities are critical in addressing issues related to the market and over-leveraged borrowers. However, at the individual corporate level, companies must find ways to manage their own debt burdens. When debts become unsustainable, a common analysis is that they will not be repaid, as the very definition of “cannot be paid” suggests. As a result, companies like Sunac had to opt for debt restructuring to address its financial situation.
At this stage, determining the extent of losses incurred by different parties becomes a negotiation. This includes assessing how much equity investors will suffer, as well as how much burden will be placed on bondholders. The negotiation also involves deciding whether losses will be realized immediately or deferred through strategies such as offering lower interest rates on extended terms, which may still result in actual losses but may not need to be recognized as such.
Sunac was successful in exchanging its old bonds and notes with new ones on revised terms, with this process mainly concerning its offshore lenders. Along with favourable macroeconomic policies, this allows for some value to remain for the equity after the default that occurred a year prior. However, despite this positive development, the value remaining is still lower than before the default, which is appropriate given that equity investors should absorb some of the losses. This explains why Sunac’s return to the stock market listing resulted in an opening 50% lower than before.
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