Sunac China Warns of 207% Plunge in 2021 Profit as Impairments Emerge

Sunac China Holdings issued an updated profit warning on Tuesday, pointing to an evaporation in earning power as the troubled developer grapples with billions of dollars in debt and an ongoing winding-up petition.

For the full year of 2021, Sunac now expects to post a 207 percent plunge in profit attributable to owners of the company and a 184 percent drop in core net profit compared with the previous year, the Tianjin-based builder said in a filing with the Hong Kong stock exchange.

The fresh guidance follows a March warning in which the group chaired by Sun Hongbin estimated that profit attributable to owners and core net profit for 2021 would decrease by 85 and 50 percent, respectively.

The developer said the evolving profit figures were due to “significant changes in the company’s operating environment since March”. These led to further provision for impairment of properties under development and completed properties held for sale, further provision for expected credit loss on receivables and external guarantees, and provision for impairment of goodwill and related long-term assets in the segment of cultural and tourism city construction and operation.

Results on the Horizon

Sunac has yet to furnish its audited financials results for 2021, leading to a suspension of trading in its HKEX-listed shares since April of this year.

The developer, which has about $7.7 billion in offshore notes to repay, saw PwC resign as its auditor in June as it struggled to meet its obligations and faced rising pressure from creditors.

“The actual audited results of the group for the year may differ from the figures set out in this announcement,” Sun said in Tuesday’s filing, adding that the 2021 report is expected to be published on or before 31 December 2022.

Sunac has been communicating with advisors to a committee representing its creditors over a preliminary debt restructuring plan, and the builder plans to announce the scheme within this year, according to company representatives.

Reuters reported last week that Sunac planned to classify onshore bonds worth RMB 14.6 billion ($2.07 billion) into two groups and extend the repayment periods by up to four-and-a-half years.

Buying Time for Restructuring

In September, a holder of Sunac offshore bonds named Chen Huaijun filed a winding-up petition against the company, which vowed to take all measures to defend itself.

“The percentage of debt entitled to the individual creditor is very small,” a Sunac representative said at the time. “It is also debatable and up to decisions from a court hearing whether the winding-up petition, filed directly by an individual rather than through a trust, has legal effect.”

In mid-November, Hong Kong’s High Court adjourned the winding-up proceedings until next June to give the company more time to craft a debt restructuring plan.

Sunac had failed to pay $29.5 million in interest on $750 million in senior notes within a grace period that ended on 11 May, sending the developer into default. Also in May, Sunac warned creditors that it was likely to miss deadlines for coupon payments on three other offshore bond series.