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By Michelle Toh, CNN
3 minute read
Published 7:09 AM EDT, Tue September 19, 2023
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Country Garden avoids default for now
03:47 - Source: CNN
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Hong Kong CNN —
One of China’s leading property developers, Sunac, has filed for bankruptcy protection in the United States, shortly after winning approval from its creditors to restructure nearly $10 billion worth of debt.
The company filed a petition for Chapter 15 protection with the US Bankruptcy Court for the Southern District of New York on Tuesday.
It’s the second big distressed Chinese developer in weeks to seek such protection: Evergrande made a Chapter 15 filing in the United States a month ago, after posting losses of $81 billion in the last two years.
The process allows the court to step in when an insolvency case involves another country, and it is intended to help promote cooperation between US courts, debtors and other jurisdictions involved in cross-border bankruptcy proceedings.
Entering the process may help Sunac China negotiate with overseas lenders as it works to overhaul its debt.
On Monday, the company said in a Hong Kong stock exchange filing that it had won approval from more than 2,000 creditors to restructure some $9.9 billion in debt and interest payments owed to investors outside China.
Sunac was China’s 10th largest property developer in August by contracted sales, according to CreditSights. But before it defaulted in 2022, it was the third largest.
Its success in securing a deal with overseas creditors could provide a roadmap for other distressed developers to get back on their feet.
It was the first major Chinese property developer to win such approval, according to Sandra Chow, co-head of Asia Pacific research at CreditSights, a credit market research firm. Similar agreements had previously been reached by smaller developers involving lesser amounts of money, she told CNN.
Evergrande, the once mighty Chinese developer that defaulted in late 2021, is also looking to restructure its offshore debt, though it’s had less luck winning over overseas creditors because it has offered less favorable terms, said Chow.
“While Evergrande is still struggling to get their offshore creditors on board, Sunac has really overtaken them,” she said.
Sunac’s shares closed 4.3% lower in Hong Kong on Tuesday following news of its US bankruptcy filing, reversing gains made earlier in the day.
Like many other Chinese real estate developers, Sunac has been facing a worsening cash crunch, with a sales slump across the industry leaving many developers unable to repay their debts.
Sunac’s total liabilities reached a staggering 1 trillion yuan ($137.6 billion) by the end of last year, just as sales slumped 50% in 2022 compared to the previous year, according to its most recent annual report.
Chow said its latest restructuring would help give the company “a bit more breathing space.”
However, the core issue -— that its main business needs help — remains, she added.
In recent months, Chinese policymakers have announced a series of measures to support the ailing industry, including lowering requirements for home buyers. But “the key thing now is, how is the policy support going to help in terms of turning around their sales and the actual underlying business?” Chow asked. “That will be … the crux of the matter.”
Despite the flurry of efforts in recent weeks intended to stimulate the crisis-hit industry, concerns remain. Country Garden, China’s biggest homebuilder as of just a few months ago, continues to teeter on the brink of default.
— Andy Rose contributed to this report.
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