Real estate: Chinese developer Sunac misses payment amid property crisis

Home Economy Real estate: Chinese developer Sunac misses payment amid property crisis
Real estate: Chinese developer Sunac misses payment amid property crisis

China’s property crisis may be poised to claim another scalp, after a previously healthy developer suddenly hit the skids this month.

A new Chinese developer appears to be following in Evergrande’s footsteps, after missing a crucial payment and sending shockwaves across the already ailing sector.

The crisis enveloping China’s real estate market has made global headlines for months, with juggernaut Evergrande dominating initial coverage.

Since then, a string of other high-profile companies have also hit the skids, including Fantasia, Modern Land, Kaisa Group Holdings and more.

And now, a surprising new name has been added to that grim list.

Earlier this month, Sunac China Holdings, which was founded by billionaire Sun Hongbin, announced in a filing to the Hong Kong Stock Exchange that it had defaulted on interest payments for a $US742 million ($A1.05 billion) offshore bond.

The company also added it was unlikely to make payments on other notes coming due this year and in 2023.

“Given the group’s current liquidity constraints, there is no assurance that the group will be able to meet its financial obligations when due or within the relevant grace periods,” the company said in a statement.

It added that contracted sales for March and April this year fell by a staggering 65 per cent year-on-year, which “further exacerbated the current liquidity constraints of the group”.

It is understood that China’s controversial Covid lockdowns – particularly in Shanghai – have worsened existing cracks within the industry, which began to emerge after property prices began to drop in smaller cities, and when the Chinese government rolled out measures to curtail over-the-top property borrowing via its “three red lines” policy, leaving Evergrande and other firms in the lurch with mountains of debt.

The sector has also been further hampered by a weakened yuan in recent months.

However, until now, Sunac was widely considered to be in fairly healthy financial shape, with Mr Hongbin insisting last year that his company would never “bomb” like others had – meaning the latest announcement is all the more shocking.

A source close to the company told Reuters Sunac was now weighing up whether to restructure its offshore debt to extend payments, and was in discussions with “state-owned entities about strategic investments in the firm”.

The disaster has also impacted Sun personally, with his net worth plunging by more than 70 per cent from 2021, to around $US2.5 billion ($A3.5 billion) today.

Meanwhile, Sunac has frozen trading in its shares since April 1.

‘Mission impossible’

IG Markets analyst Hebe Chen told news.com.au that the Sunac news would be a huge blow for the sector which had already been reeling from other highly publicised defaults.

“From the investors’ point of view, it is quite certain that the confidence in the sector building up through past decades will be very difficult to regain, especially given that Sunac is just one of them,” she said.

“But the worst risk is actually coming from the macro picture.

“As we know, China is rushing to save its economy from the tumbling growth rate. The absence of the property sector, which contributes up to 25 per cent of its GDP, may turn it into a ‘mission impossible’.

“Some may argue that China has recently signalled a boost to the property sector by lowering down first homebuyer loan rate, but the 16 per cent unemployment rate of young people has suggested how limited the move could help.”

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