Sunac China in US$741.6m bond default

Developer snared by ‘three red lines’ policy and home sales slump amid pandemic

Sunac China Holdings has become the latest mainland property developer pushed into default by Beijing’s “three red lines” deleveraging campaign and a slump in home sales amid economic disruption brought on by Covid-19 containment policies.

China’s fourth-largest developer by sales last year, Sunac failed to pay US$29.5 million in interest on a US dollar bond before a Wednesday deadline and did not expect to make payments on three other notes, it said in a filing with the Hong Kong stock exchange yesterday.

The filing concerns a US$741.6 million bond with a coupon of 7.95 per cent, which will mature on October 11, 2023. The interest payment originally came due on April 11, but Sunac was given a 30-day grace period.

The company added in the filing that it had not paid interest on three other senior-note dollar bonds: a US$643 million bond with a coupon of 8.35 per cent maturing in April 2023, a US$942 million bond with a coupon of 5.95 per cent maturing in April 2024 and a US$400 million bond with a coupon of 6.8 per cent maturing in October 2024.

Like Zhongliang Holdings, which on Tuesday extended a deadline for creditors to accept an exchange offer on two of its dollar-denominated bonds, Sunac, under the three red lines system, is unable to take out new loans worth more than 10 per cent of its current debts.

“The company does not expect that it will make payments under the abovementioned notes and other senior notes issued by it when they become due or within the relevant grace periods,” Sun Hongbin, Sunac’s chairman, wrote in the filing.

One of the country’s top developers with a strong presence in major cities such as Beijing, Shanghai and Shenzhen, Sunac sold only 13.6 billion yuan (HK$15.9 billion) worth of homes in April. This represents a 75 per cent drop compared with a year ago and a 40 per cent decline from the 22.8 billion yuan sold in March.

Sunac’s failure to make the interest payment on the October 2023 bond means bondholders can seek an immediate repayment of the principal and interest, but the company said it had not yet received acceleration notices from those debtors.

Trading in the company’s shares has been suspended since April 1 after Sunac did not deliver its annual results before March 31 as required by the Hong Kong exchange.