On the evening of September 18, Sunac China just issued an announcement that the overseas restructuring plan was approved by a high vote, and on September 19, it was reported that Sunac China applied for "bankruptcy protection" in the United States, making Sunac China Innovation once again the focus of traffic attention. Since September, Sunac China has been hotly searched, and news such as the hot sales of Beijing projects, the return to Hong Kong Stock Connect, and the doubling of stock prices have frequently brushed the screen, which in the final analysis is to escort overseas debt restructuring.
If the restructuring is successfully completed, Sunac will become one of the first batch of leading real estate enterprises to pass domestic and foreign debt restructuring, and the overall debt scale will be greatly reduced, which will be conducive to enhancing the market's expectations for its business recovery. However, there is still a long way to go to completely reverse the current predicament and return to normal operations. Whether it can become the lucky one in the thunderstorm housing company, and successfully pass the crisis period, there is still a question mark.
The future is long, difficult to move forward, in the current sluggish market environment, normal operation of real estate enterprises are also actively cultivating or transforming to achieve contrarian growth. Among the many thunderstorm housing companies, there are many who choose to "lie flat", but there are also a few housing companies that actively break the situation. Although I don't know what the final result will be, many thunderstorm housing companies are also watching how Sunac will reverse the existing situation. We follow Sunac China's timeline after the thunderstorm to explore how much Sunac China has the possibility of getting out of the predicament.
Public thunderstorm defaults cannot escape the harm caused by the development model of high leverage and high debt
Sunac China defaulted publicly in May 2022, and the company matured in April on four US dollar bonds with a total of US$105 million (about 707 million yuan), which could not be repaid within the relevant grace period, which also led to the suspension of trading of its shares on the same day. In fact, before the default of this note, Sunac had promoted the extension of the "20 Sunac 01" and "21 Sunac 03" bonds in March 2022, and the chairman Sun Hongbin even "betted" his net worth and reputation to provide unlimited joint and several liability guarantee guarantee for a 4 billion yuan bond.
In 2015, Sunac's revenue was 23 billion yuan, which exceeded the 100 billion mark in only 3 years, and reached 124.7 billion yuan in 2018. In 2020, it soared further to 230.6 billion yuan. The myth of "how bold people are, how productive the land is" will finally be shattered one day, and the situation that once hundreds of billions of housing enterprises have come to the thunderstorm will inevitably give people the impression of a thin foundation but good success. The reasons behind this are also worth pondering.
The inertia of pursuing scale has made companies overly optimistic and aggressive in investing. In addition to the well-known large-scale purchase of Wanda's hotel and cultural tourism assets and investment in the already troubled LeEco Group, Sunac China is also very active in acquiring land reserves. In 2019, Sunac's land reserve reached 230 million square meters, an increase of 41%. In 2020, it will increase by another 10%, reaching a peak of 260 million square meters, leaving Evergrande and Vanke behind. Sunac's land bank also fell by only 1.6% in 2021.
A large number of land reserves have brought huge liquidity pressure to Sunac China, coupled with the impact of the epidemic, the industry situation has taken a sharp turn several times, sales have continued to decline, and the decline rate is much faster than expected, and the company has liquidity difficulties. Before the risk, Sunac raised funds by selling shell shares, allotment financing, and Sun Hongbin paid out of his own pocket in order to maintain the credibility of the open market, but it finally broke out in May 2022 and fell into a debt crisis. The development model of high leverage and high debt is vividly expressed in Sunac China.
The successful rollover of domestic bonds has led to the choice of bowing for overseas bonds
Sunac China's debt restructuring progress has been closely watched and is the key to determining whether it can successfully go ashore. As of June 30, Sunac China's total borrowings were about 312.57 billion yuan, and the capital-liability ratio was about 80.5%; Sunac China has about 7.291 billion yuan in cash and cash equivalents, and the pressure of debt resolution is still relatively large.
On January 4, Sunac Real Estate Group Co., Ltd.'s total of 16 billion yuan of onshore bonds, the overall rollover plan was approved by the bondholders' meeting. A total of 10 corporate bonds and supply chain ABS were involved in the rollover, with a weighted average rollover period of 3.51 years. It has become another real estate enterprise that has completed domestic debt restructuring after R&F and Longguang.
Since December 2022, Sunac has been communicating with investors about the overall rollover plan of domestic bonds, and has now reached the overall rollover in accordance with the rules of the bondholders' meeting. After the approval of the domestic bond rollover plan, it is expected to ease Sunac's liquidity pressure in the next 3 to 4 years, improve the overall financial position, and create favorable conditions for the company to resume normal operations.
Sunac China is working hard to facilitate its offshore debt restructuring after the successful onshore debt restructuring. On the evening of June 13, Sunac China announced that as of now, the consenting creditors holding about 87% of the total outstanding principal amount of existing debt have joined the restructuring support agreement. Sun Hongbin once again showed great sincerity to creditors and adjusted the restructuring plan: mainly to reduce the conversion price of debt-to-equity swaps, and the upper limit of the size of mandatory convertible bonds was further raised.
Although this plan is to allow more creditors to agree and choose a "debt-to-equity swap" to reduce Sunac's debt pressure, Sun Hongbin is actually Sunac's big creditor, and after this adjustment, Sun Hongbin sits on the same boat as other creditors. Moreover, the increase in debt-to-equity swaps will dilute Sun Hongbin's shareholding in Sunac China. At the end of 2022, Sun Hongbin's shareholding ratio was 38.75%. If the plan is passed, Sun Hongbin's shareholding will fall to the dangerous edge of 30%, and may lose Sunac China's actual controller status. As the founder of Sunac, Sun Hongbin is willing to bow his head in order to save Sunac.
On June 14, the day after the plan was released, Sunac China announced that the winding-up proceedings against the company had been terminated by petitioner Chen Huaijun in relation to his winding-up petition against the company in respect of the senior notes (involving US$22 million in principal amount and accrued interest). It is understood that Chen Huaijun, who filed a winding-up petition with Sunac China, is the general manager of Anhui Jindadi Housing Development Co., Ltd., and filed a winding-up petition against Sunac China in September 2022. The dispute between the parties was Sunac China's non-payment of its senior notes, involving US$22 million in principal amount plus accrued interest. It also shows that this bowed head to help has achieved temporary results, and won the time and space to repay the money, but the debt still has to be repaid in the end.
At 11 a.m. on September 18, Sunac China held an overseas debt restructuring meeting in the Hong Kong International Financial Center as scheduled, and issued an announcement on the evening of the same day that the overseas restructuring plans were approved by a high vote. Among them, the pass rate of the number of creditors is 99.75%, and the total debt pass rate is 98.3%, both the highest in the industry in recent years.
According to the announcement, creditors have shown high intention to subscribe for mandatory convertible bonds, and Sunac intends to raise the maximum limit of mandatory convertible bonds in the US dollar bond restructuring again, from US$2.2 billion to US$2.75 billion. The final plan will be heard in substance in the High Court on 5 October. From this calculation, the mandatory convertible bonds of US$2.75 billion, plus US$1 billion of convertible bonds and the debt converted into equity of Sunac Services at a price of HK$13.5, will be up to about US$778 million, that is, through the debt-to-equity swap, Sunac will reduce the total debt by more than US$4.5 billion.
Based on the current market conditions, Sunac China is in the interests of Sunac China to increase the mandatory convertible bond limit and that of its shareholders as a whole. This overseas debt restructuring will greatly reduce the company's overall debt scale, ease liquidity pressure, significantly increase the scale of net assets and optimize its capital structure, and be more conducive to restoring healthy operations as soon as possible. However, if the final ruling approves the plan, the successful restructuring of domestic and foreign public bonds totaling tens of billions of yuan will only win a moment of respite, and Sunac will always be on the road to resolving debts in the next few years, and it has not yet reached the stage where it can travel lightly.
In the midst of the storm, the headquarters moved back to Tianjin
On August 5, Sunac held a general manager's office meeting, at which President Wang Mengde announced that the group's headquarters was moved back to Tianjin. As the debt crisis continued to intensify, Sunac mortgaged the property rights of the 8th to 13th floors, and the many headquarters employees gathered here began to shrink, and the regions were also constantly slimming. As the mission of Sunac Headquarters, the countdown to "Embassy No. 1" has officially begun. It is understood that the employees of most departments of the Beijing headquarters will move to the Tianjin headquarters, and only a few departments such as the brand department and the financing department will remain in Beijing, but will move to Rongke Wangjing office.
On September 18, 2016, Sunac acquired 41 companies of Rongke under Lenovo for 13.8 billion; Three days later, 4 billion invested in Jinke; At the beginning of 2017, 15 billion came to LeEco; In a few months, Sun Hongbin completed the century acquisition of Wanda with 438 small goals. In fact, for Sunac, Tianjin is not only a base, but also a blessed land, before Sun Hongbin's Sunchi encountered the risk of capital chain breakage, but also recreated the legend of Sunac.
Now that the Great Saint has returned to the mountain, returned to the original point, and regathered its strength in the base camp, if it can return to the basics, the deep cultivation of the region is based on strengthening product innovation, and then gradually exploring new models, it is also a relatively rational choice.
The interim operating results have improved, and the tone of the financial report endorsement has improved significantly
According to the interim report released on the evening of August 30, Sunac China achieved contract sales of 52.14 billion yuan in the first half of this year, with a sales collection rate of more than 90%; Achieved operating income of 58.47 billion yuan, an increase of 20.5% over the same period last year; The loss attributable to owners of the company was about 15.37 billion yuan, a decrease of about 3.39 billion yuan or about 18.1% from the same period last year; Core net loss was approximately $9.14 billion, a decrease of $1.92 billion from the same period last year. Since the beginning of this year, Sunac China's operating performance has improved, and profitability has improved. The auditor BDO gave an "unqualified opinion" to Sunac's 2023 interim report, which is a significant improvement over the "inability to make an opinion" in the 2022 annual report. It proves that Sunac's fundamentals and operation have a trend of stabilization and improvement, and the company's internal management is standardized, which has withstood the test of strict auditing.
On September 4, Sunac No. 1 Courtyard in Chaoyang Park, East 4th Ring Road, Beijing, China, subscribed for 169 sets in a single day, with a total subscription amount of about 5.62 billion yuan, exceeding the contract sales of the whole month in July. However, this series of momentum has indeed made Sunac's stock price rise a lot.
However, it should be known that on November 28 last year, the investor information of Oceanwide Construction Holdings Co., Ltd. was changed, and in addition to Sunac China, two new shareholders were added to CITIC Trust Co., Ltd. and Wuhu Hua Financing Capital Chuangyu Investment Center (Limited Partnership). After the change, Sunac China's shareholding ratio in Oceanwide Construction decreased from 100% to 10.322%, while CITIC Trust and Huarong's shareholding ratio was 64.678% and 25% respectively. In other words, Sunac's holding ratio in the project is already very small, so the actual profits obtained are only the tip of the iceberg in Sunac's huge debt.
And it is certainly not enough to rely on the hot sales of a real estate project in Beijing, the question is whether the recovery of the entire market can drive the smooth launch of new projects? Can the inventory be sold smoothly? Can the value of more than 100 million soil reserves be returned? Only by returning to hundreds of billions of sales can profits cover its liabilities.
Return to Hong Kong Stock Connect and obtain the liquidity blessing of southbound funds
According to the Shanghai Stock Exchange on September 5, according to the relevant provisions of the "Shanghai Stock Exchange Shanghai-Hong Kong Stock Connect Business Implementation Measures", the list of Shanghai-Hong Kong Stock Connect targets under the Shanghai-Hong Kong Stock Connect has been adjusted, and effective from September 5, 2023, Sunac China and other 22 shares have been transferred, and Sunac China has also become the only real estate stock transferred. This means that mainland funds can buy Sunac shares directly (previously, they could only sell or hold, not buy).
Under normal circumstances, if you are accepted into the Hong Kong Stock Connect list, you can get the liquidity blessing of southbound funds, attract more investors' attention, and enhance the trading activity and liquidity of stocks. At the same time, the acquisition of Hong Kong Stock Connect often brings a certain degree of improvement to the company's valuation.
On the same day, Sunac China's share price rose sharply again, rising 23% in early trading to close up 25.4% to HK$1.58, with the latest market value of HK$8.6 billion. As of the close of trading on September 6, Sunac China's stock price soared again, reaching HK$2.66 per share, an increase of 68.35%, which has risen for three consecutive trading days, with a cumulative increase of more than 160%. Can't help but make netizens ridicule: Sunac, which has just returned to the "world" from the "immortal world", has risen to the sky, which really makes Sunac fire again.
Following Evergrande, Sunac also filed for bankruptcy protection in the United States
On September 19, Sunac, which had just passed the foreign debt restructuring plan with a high vote, reported that Sunac China had applied for bankruptcy protection with the U.S. Bankruptcy Court for the Southern District of New York under Chapter 15 of the U.S. Bankruptcy Law, in order to obtain the recognition of the U.S. court's recognition of Sunac's restructuring arrangements in the Hong Kong court. What kind of divine operation is this?
Applying for "bankruptcy protection", rather than "bankruptcy" as ordinary people know, is conducive to the company and creditors reaching a restructuring agreement to avoid bankruptcy and preserve assets in the United States. Moreover, during the "bankruptcy protection" period, creditors cannot be compelled to repay debts, which is also an important information point.
However, in the past August, Evergrande did the same thing in the same court. Some experts believe that the intention of applying for overseas bankruptcy protection by a housing enterprise with insurance has at least two aspects: first, the debt restructuring of the housing enterprise with insurance, overseas assets can be protected, and litigation and other procedures involved in liabilities can be suspended; Second, after filing for bankruptcy protection, under the condition of protecting the interests of US creditors, the assets of the insured housing enterprise in the United States can also be realized and distributed to representatives or investors in other countries.
Sunac's operation, in the eyes of the outside world, is different from Evergrande's purpose, and Boss Xu is more to protect his overseas assets or funds, that is, to protect himself. Sunac may have set up a firewall to effectively promote the implementation of the debt restructuring plan for the sake of overseas assets, and used bankruptcy protection to avoid some creditors repenting later. After all, Sunac China's recent situation is also changing in a positive direction.
For real estate enterprises, the core of resuming normal operations is to return to positive sales, restart land acquisition and obtain public market financing. At present, Sunac obviously does not have these conditions.
However, in terms of land reserves, according to China Report, as of June 30, 2023, Sunac China's equity land reserve was about 122 million square meters, and the value of equity land reserve was about 1.39 trillion yuan, more than 70% distributed in first- and second-tier cities. In the first half of the year, 77% of Sunac's sales came from first- and second-tier cities such as Beijing, Shanghai, Guangzhou and Suzhou, and this layout will provide strong support for its sales recovery after the market improves. At present, doing a good job in the decentralization of existing projects, revitalizing existing assets, and making them have endogenous momentum is the top priority of Sunac.
At the level of public market financing, Sunac does not have to expect much in the short term, most private enterprises are still very difficult in financing, which further leads to difficulties at the debt and operating levels. As the debt pressure has not eased, although it has received a short respite, Sunac's cash flow is still decreasing, and it is still facing liquidity pressure in the future. In the period of reshaping the real estate competition landscape, multi-channel funds are betting on the investment value of real estate stocks, but it is important to understand that the bustle of the capital market is short-lived, and it comes and goes in a hurry. Whether Sunac can "return to the blood" depends on its own transformation and the drive of the market.
In terms of itself, Sunac's previous approach was "strong investment + strong products + strong marketing", but reality has proved that the sustainability of this method is not long, the applicability is relatively limited, and the risk is great. Under the current market background of supply and demand transformation, although there is strong support for the implementation of the new policy, the first thing that real estate companies should think of is business reshaping. From the perspective of high-quality real estate enterprises such as Zhonghai and Longhu, real estate enterprises that can survive and develop in the future need to have three major elements of safety, product strength and operating ability.
For Sun Hongbin, his life has had many ups and downs. After graduation, he joined Lenovo, to the establishment of Tianjin's largest intermediary - Sunchi, and then to Sunac, which exceeded 100 billion sales. Once full of spirit, but now he is white-headed, and people can't help but sigh. For Sunac, the completion of domestic and foreign debt restructuring is only a small step, although it has won the time and space to repay the debt, but still that sentence, the debt owed still has to be repaid in the end, and the road to debt repayment is not a long way. However, fortunately, Sunac never chose to "lie flat", but actively saved itself, which is still worthy of recognition, and it is Sun Hongbin's decisiveness and courage that helped him get some support.
There is still uncertainty about the recovery of the industry, and it will take time to verify whether it can finally overcome this difficulty. Sunac won the opportunity to survive on its own, but Sunac, which carries huge debts and carries a heavy load, is afraid that it is not easy to live as before.
(This article was first published on Titanium Media APP, author|Zhao Chenhan)
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