China’s property giants hobble towards end of debt restructurings

BEIJING - Most of China’s biggest defaulted developers are reaching a restructuring milestone, as creditors increasingly accept that better terms are unlikely during a real estate crisis that has triggered US$130 billion (S$168.8 billion) of defaults.

Eight of China’s 10 most indebted developers have largely if not entirely put the offshore restructuring process behind them. One of those, Sunac China Holdings, which has already gained majority support for its restructuring from creditors, is scheduled to hold a vote on Oct 14, among the last procedural hurdles it has to clear. 

While policymakers have rolled out a slew of measures aimed at propping up the housing market, sales are still sluggish and Chinese developers continue to face challenges. So far, eight of the country’s 30 major builders that have defaulted on US dollar debt have received liquidation orders, including China Evergrande Group and China South City Holdings, according to Bloomberg-compiled data. Many defaulted companies are still working on onshore debt plans also. 

Bondholders who once banged tables and peppered executives with questions during debt negotiations are now more muted, said people familiar with several Chinese real estate restructuring deals. 

“Creditors have come to realise that things won’t get better anytime soon, so they’re willing to take larger haircuts,” said Mr Ron Thompson, managing director and head of the Asia restructuring practice at Alvarez & Marsal.  

When Sunac’s restructuring process began in 2022, creditors baulked at a proposal to swop some debt for equity at a conversion price of HK$20 (S$3.30) a share. In February 2023, they held contentious all-day meetings with the company seeking better terms. Months later, more than 75 per cent of offshore creditors had signed on to the deal with a much lower conversion price. 

Less than two years after completing its initial restructuring, Sunac ran into repayment problems and pursued another one. This time, the deal took about two months to officially wrap up, compared with a little over a year for its first restructuring. 

Such condensed debt talks are becoming more common across the property sector. In general, some bondholders do not even bother to dial in to calls about small things once the basic restructuring framework is done, according to two restructuring advisers. 

Yuzhou Group Holdings, for example, spent more than two years negotiating its restructuring, for which it sought court approval in 2024. When it later revised some terms, it faced little opposition from bondholders, according to people familiar with the matter, and the deal was concluded within months. 

While some creditors are willing to accept more onerous terms, others are choosing to abandon debt talks and seek immediate liquidation. 

That was the case with state-backed builder China South City. The company missed a couple of deadlines set by a key bondholder group and eventually proposed restructuring terms that were far from the recovery of around 70 to 80 cents on the dollar that bondholders had sought, people familiar with the matter said.

At its last winding-up hearing in August, Hong Kong High Court Judge Linda Chan asked creditors if one more adjournment would be acceptable to them. But the bondholders’ lawyer insisted on immediate liquidation instead.

The China real estate era has changed and the last thing international creditors are looking for is dragged-out talks, said Mr Jason He, debt capital markets advisory leader at Deloitte China. 

“Either take the terms or press the liquidation button – both work,” he added. BLOOMBERG