Chinese developer Sunac seeks to avoid Evergrande contagion

Sunac China Holdings Ltd updates

Shares in Chinese language property developer Sunac China Holdings jumped after it launched a press release denying it had formally sought authorities help as risky buying and selling fuelled by a disaster at Evergrande confirmed indicators of spilling over within the sector.

Sunac, a Hong Kong-listed conglomerate headquartered within the northern metropolis of Tianjin, had come underneath intense market strain after a extensively circulated letter from its native workplace to the Shaoxing municipal authorities in Zhejiang province requested “coverage help”.

Sunac on Tuesday mentioned that the letter, which was been seen by the Financial Times, was a draft and had not been submitted to the town’s authorities. It added that its contracted gross sales had been Rmb415bn ($64.3bn) from January to August, up by one-third yr on yr.

Shares within the firm rose 18 per cent in Hong Kong, after having fallen sharply over the earlier two periods, whereas the CSI 300 Actual Property index jumped 6.4 per cent after the Individuals’s Financial institution of China pledged to assist liquidity within the sector.

Sunac is the newest Chinese language property developer to be thrust into the highlight as Evergrande, the world’s most indebted actual property group, grapples with an unfolding liquidity disaster. Evergrande final week missed payments on an offshore dollar-denominated bond and will quickly be pressured to undertake the biggest debt restructuring in China’s historical past.

Its woes have emerged as a take a look at case for a far-reaching slowdown in China’s actual property sector, which contributes greater than 1 / 4 of the nation’s financial exercise. The trade has come underneath strain from a authorities coverage shift to cut back debt at huge builders in addition to a collapse in current land and new residence gross sales.

The Sunac letter described a “turning level in China’s actual property trade” and mentioned the market is “nearly frozen” on the again of a “radical change in coverage”. 

Fears over the well being of China’s actual property sector have rippled throughout the $400bn Asia high-yield bond market, the place Chinese language property builders make up a sizeable quantity of whole borrowing. Sunac’s dollar-denominated bonds maturing in 2026 fell this week and had been final buying and selling at 81 cents on the greenback.

Sunac, which has enterprise ventures in tourism and healthcare, additionally introduced in a regulatory submitting late on Monday that it had bought $33.6m of its personal bonds due in February 2024.

The Chinese language authorities has carried out strict leverage guidelines for builders, generally known as the “three red lines”.

In its interim report launched this month, Sunac mentioned that on the finish of June it had a money to present borrowings ratio of 1.1, a liabilities to belongings ratio excluding advance receipts of 76 per cent and a web gearing ratio of 86.6 per cent, which might imply it met two of three of the necessities. The developer faces Rmb997bn ($154bn) in whole liabilities.

Analysts at CreditSights on Monday downgraded their score for Sunac to underperform and urged that the “deleveraging story that the corporate has been making an attempt to color will not be correct”. On Tuesday, following the announcement, the analysis group retained the underperform score however mentioned a $600m bond due subsequent June was more likely to be repaid.

Points at Evergrande have not too long ago hit other developers, corresponding to Fantasia Group, which additionally purchased again a few of its personal bonds this month, and Guangzhou R&F, which introduced an funding from its largest shareholders final week.

Thomas Hale in Hong Kong, Solar Yu in Beijing and Wang Xueqiao in Shanghai

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