Sunac China has 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 ($1.7 billion), as the troubled mainland builder continues to sell assets to raise cash.
Sunac offloaded 89.7 percent of its ownership in a project company which owns a mixed commercial and residential project just south of the Bund to CITIC Group’s CITIC Trust unit and China Huarong Asset Management according to ownership records for the company, as cited by local news outlet The Paper, with both buyers having been active in state-backed property bailouts this year.
The sale of the 628,000 square metre (6.8 million square foot) Shanghai Bund One Sino Park project, which was registered on 28 November, provides Sunac with around RMB 12 billion in capital, according to an account in Yicai Global, with CITIC Trust holding a 64.68 percent stake post-transaction and China Huarong picking up a 25 percent interest.
Sunac’s sale of the riverfront project was written into the books just one day before the company warned of a 207 percent drop in profit for 2021 as it prepares to finally release its results from last year. Also in late November the company reportedly filed a plan to extend the maturity of RMB 14.6 billion in onshore bonds by up to four and a half years after earlier defaulting on offshore bond obligations.
Friends in Need
Sunac’s sale of the Dongjiadu Road project sees it selling off one of a pair of projects that it acquired nearly four years ago from rival China Oceanwide Holdings for RMB 12.55 billion. Oceanwide had acquired the 120,300 square metre site in 2002 before going on to become one of the country’s earliest developers to default on offshore bonds.
The project on the west bank of the Huangpu includes plans for 170,000 square metres of commercial area surrounded by green space and a historical corridor. The remainder of the project includes 458,000 square metres of luxury homes which were priced at about RMB 125,000 per square metre during the sales launch in 2019, according to local listings at the time.
Terms of last week’s share sale were not released to the public at the time of publication, however, a separate report by Reuters indicated that the unsold portion of the project is worth more than RMB 50 billion. Public records show that Sunac now holds 10.32 percent of the project.
Sunac’s disposal marks the latest instance of government-backed companies taking over unfinished projects from distressed private developers in China, as the central authorities work to prevent further deterioration of the property market.
“These types of deals are likely to become more common as cash-strapped developers look to bring on equity partners to pay down debt and kick-start the development of outstanding projects,” James Macdonald, head of research for China at Savills, said in response to queries from Mingtiandi.
Sunac’s new investor is an investment unit of CITIC Group, which is one of China’s largest conglomerates and has been actively buying out failed projects this year.
Before taking on the Dongjiadu Road project, CITIC Trust in July took over five projects from Kaisa Group worth at least RMB 60 billion as part of a debt restructuring plan.
In March of this year CITIC Group became the largest shareholder in China Huarong Asset Management as China Huarong has struggled with its own debt challenges.
$9B in Offshore Debt
Sunac, which ranked as China’s fifth largest developer by sales last year, is scrambling to raise cash as it faces $7.7 billion in offshore debts, in addition to its onshore liabilities.
On Friday, Bloomberg reported that the developer is working to restructure at least $9 billion worth of overseas debt anew as it struggled to convince its creditors with the initial restructuring plan.
Trading of the developer’s shares has been suspended since April pending release of Sunac’s 2021 annual report and half-year financial statement for 2022.