Sunac Restructuring Plan Proposes Conversion of Debt Into Ordinary Shares

Sunac China Holdings on Friday previewed a restructuring plan under which the defaulting developer would convert between $3 billion and $4 billion worth of debt and certain shareholder loans into ordinary shares or equity-linked instruments.

Tianjin-based Sunac has been communicating and constructively engaging with certain holders of senior notes and other offshore debts issued by the group in the amount of $9.1 billion, the company said in a filing with the Hong Kong stock exchange.

The holders include an ad hoc group of offshore creditors that collectively hold or control more than 30 percent of the aggregate principal amount. This group and its advisors have worked closely with Sunac and its advisors, Sidley Austin and Houlihan Lokey, to conduct due diligence on the group’s financial and operational conditions.

“The parties have also made significant progress in formulating a restructuring framework and narrowing the bid-ask gap on various economic terms,” chairman Sun Hongbin said in the filing.

Note Exchange

In addition to converting up to $4 billion of the existing debt into equity, the parties have discussed exchanging some of the remaining debt for new dollar-denominated public notes with maturities ranging from two to eight years from the restructuring effective date.

Sunac would use the net proceeds from the disposal of certain assets as an additional source of funding for the repayment of the new notes.

“As of the date of this announcement, the company is still in discussion with the ad hoc group creditors on the aforementioned offshore restructuring proposal, and no definitive agreement on the terms of the offshore restructuring have been entered into between the group and the ad hoc group creditors,” Sunac said.

According to the developer, there has been no significant change to the amount of its interest-bearing debt since the end of 2021, with the unaudited principal amount of offshore debt totalling $11 billion. Of that sum, $3.7 billion has an original maturity before the end of 2022.

Cash Flow Forecast

As of June, the cash balance of Sunac’s development segment, including joint ventures and associates, totalled RMB 120 billion (now $17.3 billion) in aggregate, of which the consolidated cash balance amounted to RMB 41 billion (both figures unaudited).

The company forecasts RMB 320 billion in cash flow from projects over the next seven years or so, with 20 percent of the total projected cash flow expected to be available to upstream to offshore entities for the service of debt.

Asset disposals over the next seven years or more are seen increasing overall liquidity by RMB 60 billion, Sunac said.

The developer recently sold nearly 90 percent of its interest in a development project in Shanghai’s Huangpu district to a pair of state-owned investment firms for an estimated RMB 12 billion.

Late last month, Sunac issued a warning that it expected to post a 207 percent profit plunge for 2021, a year for which an audited annual report has yet to materialise.

Sunac’s November contracted sales tumbled 78 percent year-on-year to RMB 8.04 billion, with the contracted sales area dropping 78 percent to 605,000 square metres (6.5 million square feet), with an average selling price of RMB 13,290 per square metre.