Sunac China Holdings Ltd. won court approval for its multibillion-dollar offshore debt restructuring plan, clearing the last key hurdle for it to become the country’s first major developer to overhaul such liabilities.
Hong Kong Judge Jonathan Harris’ sign-off Thursday sets Sunac apart from major industry peers including China Evergrande Group. still struggling to find a viable debt-restructuring road map as an unprecedented housing crisis unfolds. Sunac shares jumped as much as 12%, adding to a sector-best rally in which the stock has soared 140% since the start of September.
The court ruling occurred 17 months after Sunac, which was China’s third-largest builder by contracted sales in 2021, first defaulted on a dollar note. The company’s case could provide a template for peers, some of which have sought bond extensions instead of holistic restructurings.
Sunac, now ranked 16th, unveiled its proposal in March after reaching agreement with a group of key bondholders. Within weeks, the plan had support from those holding more than 75% of the involved offshore debt. Creditors representing 98% of claims that voted at a Sept. 18 meeting backed the proposal.
The restructuring plan involves a small portion of Sunac’s 1 trillion yuan ($137 billion) of liabilities. Harris said at Thursday’s so-called sanction hearing that his only concern was that “there’s no reference to what is going on in the mainland,” referring to restructuring documents filed by lawyers. “This is only part of a big story.”
A government-driven effort started in 2020 to limit real estate leverage growth was followed by plunging new-home sales in China and a cash crunch among developers — resulting in record offshore bond defaults. Home demand has weakened anew in recent months after showing signs of recovery earlier this year.
Sunac’s debt plan covers an estimated $10.2 billion of creditor claims, $5.7 billion of which would be compensated with new dollar bonds. The remainder will be settled through getting shares of its property-management arm and convertible notes. A Sunac lawyer said at Thursday’s hearing that the restructuring is expected to meet all conditions and become effective at the end of 2023.
Dollar bondholders could see a recovery rate of 34% to 43%, according to Bloomberg Intelligence analysts Daniel Fan and Adrian Sim. That’s well above the 10-15 cent range that Sunac’s notes continued to be indicated at Thursday, prices compiled by Bloomberg show.
The developer last month sought Chapter 15 bankruptcy protection in New York, a move sometimes required in finalizing a restructuring.
--With assistance from Xinyi Luo.
(Updates throughout.)