“It is important to restore confidence in the sector.”
Sunac’s move to sweeten the restructuring deal in June to gain more creditor support is in stark contrast to the planned moves by some peers.
Yuzhou Group announced in August that one of the three options it offered would have a haircut of around 70 per cent, becoming one of the first developers to announce a reduction in principal, though there is also one option without any haircut.
LIQUIDATION RISK
Bond prices of Country Garden, CIFI and Shimao have been generally on the decline this year, and are mostly bid below 10 cents against the dollar, suggesting a below 10 per cent recovery rate for bondholders.
Developers told Reuters earlier this year they could not include haircuts to reduce the debt principal as they wanted to because of strong opposition from creditors, especially Chinese banks.
“No one has put these haircut plans to work so far,” said a senior executive of another developer. “You can offer whatever, but if creditors don’t approve your plan, you may end up being wound up.”
For creditors, however, a long-winding liquidation process may not be a good option – developer Kaisa Group has said creditors would get less than 5 per cent of their money back if it is forced into liquidation.
“I don’t think anyone wants to go to liquidation,” said Edward Al-Hussainy, head of emerging market fixed income Research at Columbia Threadneedle. “I don’t think anybody is coming to the table with that as the ultimate goal.”
Chinese policymakers rolled out a range of support measures in late August and early September to revive the property sector. But developers said they were not enough to turn around the ailing sector any time soon.
China’s average daily home sales based on floor area during last week’s Golden Week holiday were down 17 per cent from a year ago, according to China Index Academy.
“The fact that the government isn’t stepping in actively and that financial stability issues aren’t at the forefront of their thinking, it means they can impart a fair amount of pain on bondholders,” said Al-Hussainy.
Source: CNA
