Under the trend of the real estate market “stabilizing after stopping the decline,” the debt resolution efforts of listed real estate companies are also accelerating.

On the evening of January 21, Sunac China announced that the restructuring plan for the company’s domestic corporate bonds and supply chain asset-backed special purpose vehicles had been approved by the relevant bondholder meetings.

This means that Sunac’s overall restructuring of its RMB 15.4 billion in domestic debt has been successfully completed, making it the first real estate company in the industry to achieve a market-oriented restructuring of its domestic debt. Previously, listed real estate companies mostly dealt with domestic debt through credit enhancement and extension.

Sunac was no exception. As early as 2022, Sunac completed a restructuring of its domestic public market debt, with a weighted average extension of 3.51 years for RMB 6 billion in domestic debt. Subsequently, the company redeemed RMB 631 million in 2023 according to the adjusted arrangement.

The first round of restructuring proceeded smoothly, mainly because the interest rates on domestic debt remained unchanged at that time, with only the redemption arrangements adjusted, and creditors’ interests were not significantly affected. Sunac China Chairman Sun Hongbin also provided joint and several liability guarantees for one of the domestic bonds, giving creditors confidence, which facilitated relatively smooth negotiations for the first round of restructuring.

However, over the subsequent two years, the real estate market continued to be in an adjustment period, and real estate companies, especially those in distress, were still struggling. Even companies that had extended their debt found themselves in awkward situations where it was difficult to make repayments and implement restructuring plans. Therefore, in the second round of negotiations, Sunac’s approach to handling domestic debt was significantly different from the past.

Specifically, Sunac’s debt restructuring plan combines four options: cash tender offers, stock and/or stock economic interest redemption, debt-for-asset swaps, and debt extension, providing creditors with diversified returns and exit mechanisms. For Sunac, it is expected to reduce its domestic corporate debt by more than 50%, with the longest extension for the remaining debt reaching 9.5 years, and no redemption pressure within the next five years.

For example, under the “cash tender offer” option, Sunac initiates a cash tender offer to repurchase bonds at 20% of their face value, with a total cash amount not exceeding RMB 800 million, and a cap on the bond principal accepted of RMB 4 billion, potentially reducing debt by up to RMB 4 billion.

Under the “stock and/or stock economic interest redemption” option, by issuing a specific number of new shares to a special purpose trust, RMB 100 in bonds corresponds to 13.5 Sunac shares, with an expected total of 500 million new shares issued, potentially reducing debt by up to RMB 3.7 billion.

The “debt-for-asset swap” option involves establishing a service trust where bondholders enjoy the income rights of specific assets held by Sunac’s subsidiaries. For every RMB 100 in face value of the bonds, the compensation amount is RMB 35, potentially reducing debt by up to RMB 3 billion.

Next, Sunac will arrange for bondholders to select and allocate among the restructuring options for their held bonds.

In addition, regarding offshore debt, according to informed sources, considering that current market conditions have not met previous expectations, Sunac is currently seeking a more comprehensive solution for its offshore debt to optimize the company’s capital structure as a whole.