19th September 2023 – (Hong Kong) Chinese developers Country Garden and Sunac have reached debt agreements with creditors, providing some relief to the crisis-ridden property sector, although concerns remain about the recovery of home sales. Sunac China Holdings saw a surge in shares by up to 14% after creditors approved its $9 billion offshore debt restructuring plan, marking the first successful debt overhaul of a major Chinese developer. Additionally, Country Garden obtained creditor approval to extend repayment on another onshore bond, the final one among eight bonds seeking extensions. These developments come as Beijing intensifies efforts to revive the property sector, which accounts for a significant portion of the world’s second-largest economy.
Sunac announced that 98.3% of bondholders who attended the vote approved the proposed restructuring plan, which had been agreed upon by some creditors in March. The company now seeks approval from a Hong Kong court, with a hearing scheduled for 5th October. Under the restructuring terms, a portion of Sunac’s debt would be converted into convertible bonds backed by its Hong Kong-listed shares, along with new notes with maturities ranging from two to nine years. Analysts view these debt deals as positive signs, indicating that Chinese developers are making efforts to reach agreements and potentially generate returns for investors, depending on the recovery of China’s property market.
Despite the support measures implemented by Beijing, the property sector faces challenges. House prices continue to decline, with recent data showing the fastest pace of decline in new home prices in ten months in August. Real estate investment and sales have also registered further declines. While the support measures may stimulate some genuine demand, particularly ahead of the traditional sale season in top-tier cities during late September and early October, the potential for a sustainable rebound remains uncertain. ANZ Senior China Economist Betty Wang suggests that the pace and extent of any turnaround will likely be smaller than in previous cycles. Factors such as job market uncertainty, deteriorating income inflows, shifting expectations, and a potential increase in long-term housing supply cast doubt on a sustained recovery in the sector.
