China property creditors face worsening restructuring terms as sector recovery hopes sour
As more Chinese property developers move towards restructuring billions of dollars of debt, their offshore creditors are expected to face another setback - the prospects of revamp terms being tightened due to a worsening outlook for the country's real estate sector.
So far, developers accounting for 40 per cent of Chinese home sales have defaulted on their debt obligations since 2021, according to JPMorgan. Those defaulted companies, mostly private, have issued around US$110 billion worth of high-yield offshore bonds.
Despite a raft of Beijing's supportive policies in recent months, home sales are showing few signs of improvement. Developers, financial advisers and bondholders said that could make debt restructuring terms much worse than expected earlier.
Sunac China last week became the first property developer to complete the debt revamp process after the sector plunged into a debt and funding crisis in mid-2021, while Country Garden, China's largest private property developer, is expected to start those negotiations soon.
A few developers, including Shimao Group and CIFI Holdings, have reduced offers to offshore creditors in the past few weeks, citing a worsening environment, six sources with knowledge of the matter said.
The revised restructuring offers will see offshore creditors taking haircuts of up to 70 per cent to 80 per cent, compared to zero in the final plans the developers had proposed to them earlier, said the sources.
"Compared to 'Sunac time', the environment is very different, hence the terms have to be very different," said a senior executive of a developer in restructuring talks, citing worsening home sales and a weaker yuan currency.
"Sunac may need to restructure again in a couple years time if bad sales continue, so we don't use Sunac as a template. It's not achievable."
An adviser to developers also said home sales from June to September were much worse than initially anticipated in the negotiations, so many firms are lowering their terms and it would take time for developers to convince creditors.
All the sources declined to be identified as they were not authorised to speak to the media.