Sunac shares plunge after China’s third largest developer plans to raise US$580 million from share placement

Sunac will place 452 million shares at HK$10 per share, with half of the funds to be used to repay loans
The stocks closes 22.6 per cent lower at HK$9.13 in Hong Kong

China property

Iris Ouyangin Shenzhen

Published: 1:30pm, 13 Jan 2022

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Sunac China Holdings slumped after it announced a HK$4.52 billion (US$580 million) share placement, as the mainland’s third largest developer tries to ring-fence itself from the debt crisis surrounding Chinese property companies.

The Hong Kong-listed company will place 452 million shares at HK$10 per share, representing 9.1 per cent of its existing share capital. Half of the proceeds will be used repay loans, it said.

Sunac’s move comes as investors are closely watching developers’ ability to service debt after China Evergrande Group, Kaisa Group Holdings and a few others have defaulted on their bond payments. Investors expect debt payment failures by Chinese developers to continue to rise this year.

Average home prices are forecast to fall 1 per cent in the first six months this year, according to 14 analysts and economists surveyed by Reuters late last year.

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Chinese developers have bore the brunt of Beijing’s tight property policies to curb speculation in the market, with the “three red lines” thresholds on borrowings pushing them to the brink. As a result companies have resorted to taking various measures to raise funds, including assets disposals, sales of stakes in subsidiaries and share placements.

There are also rumours that Sunac, one of China’s most heavily indebted property developers, may have defaulted on a wealth management product.

Sunac’s share replacement was aimed to counter short-term uncertainties in the market based on prudent caution, a source close to the company said, adding that it has sufficient cash to pay its upcoming short-term debt maturities.

“After this share replacement, the company has no near-team plan to sell more equity in itself or pare some of its stake in unit Sunac Services Holdings,” the source added.

Sunac’s shares closed 22.6 per cent lower at HK$9.13 on Thursday.

The Beijing-based company’s shares and bonds had already slumped on Wednesday, after its stakes in at least two companies were frozen by a court in Shenzhen.

The company has also been included in a list of 11 developers by the People’s Bank of China that need liquidity support, according to financial information provider Redd Intelligence.

Sunac said the other half of the funds raised from the share placement will be used for general corporate purposes and to “further enlarge the company’s shareholder base and optimise the capital structure”.

After the share placement, which will close around January 17, public shareholders’ stake in the company will drop to 51.92 per cent from 56.62 per cent.

01:29

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Separately, a subsidiary of Sunac has come under liquidity pressure, as it has been prevented from collecting revenues for flats sold in September because of the government’s market-cooling measures.

Sunac’s unit in the Zhejiang provincial city of Shaoxing said it was waiting for local authorities to register the titles of its flats, preventing the developer from collecting more than 4 billion yuan (US$619 million) in sales proceeds.

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