By NIU Yu
Shares in Chinese property developer Sunac China fell by as much as 58 percent on Thursday as trading resumed after a year of suspension. When trading was halted in April last year, Sunac stock was trading at HK$4.58 (US$0.58, 4 yuan) and its market value was around HK$25 billion.
A lot has changed in the property market and the world at large in the 377 days that Sunac has been suspended. Real estate stocks have endured several rounds of freefall. Frozen in time for much of the recent madness, Sunac stock had a long way to fall.
Trading in more than 30 Hong Kong-listed property developers was halted at the end of March last year after a number of firms, including Sunac, missed the deadline to file an annual report.
There was no single cause behind the troubles. Each developer had a unique matrix of previously undisclosed debts, pandemic restrictions and disputes over fees to blame for their woes. The suspended groups included Aoyuan, Fantasia, Kaisa, Modern Land and Sunshine 100.
HKEX allowed almost 200 stocks to stay in play by releasing unaudited results by the deadline, a rule introduced to help businesses during the pandemic. Developers including Guangzhou R&F Properties, Ronshine and Yuzhou continued trading.
Last year, among the 60 Hong Kong listed Chinese mainland property developers, 53 saw their market value evaporate. The average value of these companies fell more than 70 percent in 2022.
Sunac et al were excluded from the melee because they were already so deep in trouble. It’s fair to say that these companies have been better off out of it for the past year. This, after all, is the main purpose of a suspension in trading.
In May last year, the company missed a US$29-million interest payment and warned of more defaults to come. Outstanding principal due was around 101 billion yuan. The company’s inability to service this debt appropriately started a domino effect of penalty clauses, as failure to manage one debt raised red flags and sounded alarms across the entire debt landscape. So far, demands for early repayment have reached 84 billion yuan.
The company released its 2021 annual report in December last year and its 2022 report in March of this year. Sunac recorded revenue of 97 billion yuan last year.
At the end of 2022, assets amounted to 1,090 billion yuan, with current and non-current borrowings of 253 billion yuan and 45 billion yuan, respectively. Net assets reach only 86 billion yuan. Cash on hand amounted to 38 billion yuan.
In December Sunac proposed restructuring debt worth US$9 billion by converting up to US$4 billion of offshore liabilities into ordinary shares or equity-linked instruments. The rest of the debt was to be swapped for new dollar-denominated bonds, with maturities ranging from two to eight years and no interest payments for the first two years.
In March, Sunac announced restructuring agreements had been reached with overseas creditors holding more than 30 percent of the company’s outstanding offshore debt. But analysts were unconvinced by the plan.
A group of investors is to collectively convert existing debt of US$1 billion into an equal value of nine-year convertible bonds. Bonds can be exchanged for Sunac shares at a price of HK$20 in the first 12 months. Thereafter, the bonds no longer carry conversion rights and will be redeemed on maturity.
In 2020, a crackdown on debt in the property sector left major players such as China Evergrande Group and Sunac under pressure to make payments. Companies had no choice but to renegotiate with creditors to avoid bankruptcy.
The crisis deepened in 2022 as buyers, angry at delays, withheld mortgage payments.
Sunac, Kaisa Group and Jingrui Holdings have also resumed trading, but trading of 21 developers are still suspended, including Evergrande.
