Daily Management Review

Deals With Sunac, And Country Garden Deliver Relief For China's Real Estate Market


Deals With Sunac, And Country Garden Deliver Relief For China's Real Estate Market
By negotiating debt settlements with creditors, Chinese developers Sunac and Country Garden helped the crisis-stricken real estate market in certain ways, but pessimism over a rebound in housing sales continued to cloud the outlook.
After creditors accepted Sunac China Holdings' $9 billion offshore debt restructuring plan early on Tuesday, the first time a major Chinese developer had received approval for such a debt restructure, the company's shares rose as much as 14%.
The stock, however, lost all of its gains to end the day down 4.3% after news reports citing court records revealed Sunac had applied for Chapter 15 bankruptcy protection in the United States.
The action protects non-U.S. corporations that are going through restructuring from creditors who want to sue them or seize their assets in the United States under the terms of the U.S. bankruptcy code. In complicated offshore debt restructuring proceedings, the stage is seen as procedural.
China Evergrande Group also requested Chapter 15 protection last month as it seeks to reorganise a total of $31.7 billion in one of the largest such exercises in history.
Separately, cash-strapped Country Garden, which had been seeking extensions for eight bonds, received consent from creditors to postpone payments on another onshore loan, according to two persons familiar with the situation on Tuesday.
With a slew of assistance measures released over the past two weeks, Beijing is stepping up attempts to revitalise the property sector, which makes up about a quarter of the world's second-largest economy.
However, as of Tuesday morning in Asia, two of its offshore bondholders claimed they had not received the $15 million coupon payments that were due on Monday, raising more questions about its cash flow and capacity to make future repayment commitments.
The principal will become due and any failure to service will result in cross-default terms if the largest private developer in the nation fails to pay the coupon before the grace period expires in the middle of October.
Shares of Country Garden finished the day down 2.9% in Hong Kong. It did not respond to a request for comment from Reuters.
In the meantime, Sunac said late on Monday that the restructuring plan offered and accepted by some creditors in March had been authorised by creditors owning 98.3% of the total value of the bonds.
At a hearing scheduled for October 5, the developer will ask a Hong Kong court to approve the plan.
A portion of its debt would be converted as part of the restructuring arrangements into convertible bonds backed by its Hong Kong-listed shares and new notes with maturities ranging from two to nine years.
"I will treat it as a positive ... We haven't seen much progress on the offshore market, so this shows at least some Chinese developers are trying to reach an agreement," said Gary Ng, senior economist at Natixis Corporate and Investment Bank.
Investors would be able to get something back if the strategy is done properly and depending on if the revival of China's real estate market can create enough cash flows, he added.
Country Garden has not yet missed a bond payment, whereas Sunac has joined a long list of Chinese developers that have since an extraordinary liquidity crisis rocked the real estate sector in 2021.
The most recent debt deals with creditors may provide Chinese developers with some breathing room and help them escape default or a messy liquidation procedure, but the success of the accords will depend on a recovery in the real estate market.
Some offshore bondholders claim that their alternatives are limited to accepting debt restructuring proposals since liquidating a cash-strapped developer would likely result in very low returns.
House prices have fallen even as Beijing implements measures to support the industry. According to the most recent data, new home prices declined at their highest rate in 10 months in August, while real estate investment and sales declined even more.
The assistance measures, according to ANZ Senior China Economist Betty Wang, could stimulate some "genuine demand," particularly before the customary sale season in high-end cities in late September/early October.
"However, the pace and the extent of such a turnaround will be much smaller than in previous cycles," she said in a report published on Tuesday.
"It's also questionable whether it will kick off a sustainable rebound, especially considering the uncertain job outlook, deteriorating income inflows, a shift in expectations, and potential increase in housing supply in the long-term."
Aside from real estate, recent Chinese economic figures indicate that manufacturing output and retail sales increased more quickly in August, indicating that a number of recent initiatives to support the economy are beginning to take hold.