Sunac

Transaction: Sunac China

Houlihan Lokey is pleased to announce the successful restructuring of c. USD 10.2 billion offshore indebtedness issued by Sunac China Holdings Ltd. (Sunac). The transaction comprises a holistic restructuring of Sunac’s offshore capital structure that (i) reduces debt by up to USD 4.5 billion and (ii) extends offshore maturities by approximately five years.

Headquartered in Tianjin, China, Sunac (HKSE:1918) is the third-largest Chinese real estate developer by contracted sales. The company invests and develops residential and commercial properties in major cities across China. In addition to its property development business, the company also engages in property management business through its majority-owned subsidiary, Sunac Services Holdings Ltd. (Sunac Services).

Since the second half of 2021, Chinese real estate developers have experienced ongoing turmoil as a result of a confluence of factors, including tighter regulatory control of presale proceeds, limited access to financing, and a steep decline in contracted sales. The onshore and offshore debt markets, which have historically been key sources of funding for Chinese property developers, have essentially been frozen due to overarching investor concerns regarding the sector. These challenges, coupled with overall macroeconomic headwinds in China, have exerted immense pressure on Sunac’s liquidity and its ability to service debt. As a result, the company failed to pay interest on four tranches of senior USD notes in May 2022, triggering cross-defaults on the company’s various offshore debt facilities and necessitating a holistic restructuring.

Houlihan Lokey was retained as the exclusive financial advisor to Sunac and worked closely with the company’s management and board of directors to conduct due diligence, explore creative transaction structures, formulate a feasible restructuring plan, and negotiate with an ad hoc group (AHG) of creditors holding more than 30% of the company’s offshore debt to implement a consensual restructuring transaction.

The agreed restructuring plan (i) provides the company with a long-term, sustainable capital structure and sufficient flexibility to both normalize operations and capitalize on future growth opportunities, while (ii) providing creditors the opportunity to benefit from potential future upside as the business recovers. Given the broad creditor base, the proposed transaction offers a menu of options for creditors to choose between to address their divergent objectives and constraints. The restructuring was implemented via a scheme of arrangement in Hong Kong that was effective on November 20, 2023, with creditors representing approximately 98% of the principal amount of the restructured debt voting in favor of the transaction.

Key economic terms of the transaction included:

  • USD 1.0 billion of debt claims (equivalent to the accrued and unpaid interest) converted into a nine-year convertible bond.
  • Options for creditors to elect to receive up to USD 2.75 billion of mandatory convertible bonds, USD 775 million of Sunac Services shares, and/or USD 5.7 billion of new senior notes (“New Notes”).
  • New Notes terms:
    • Maturities ranging from three to seven years (weighted average of approximately five years).
    • Coupons of 5.0%–6.25% per annum (with interest paid-in-kind during the first two years).
    • Cash sweep on a package of 27+ investment properties (among others).
  • Improvements in reporting and governance, including the appointment of a director nominated by the AHG to the company’s board.

The Sunac transaction is one of the largest and most high-profile restructuring transactions both in China and globally, as (i) Sunac is the first major Chinese real estate developer to have successfully completed a holistic offshore restructuring that results in material deleveraging in the current China real estate crisis and (ii) the transaction provides a blueprint for future offshore restructurings for other Chinese real estate developers.

Houlihan Lokey acted as the exclusive financial advisor to Sunac, structuring and negotiating the transaction on its behalf.

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