Sunac to sell up to US$1 billion of bonds to refinance debt from its shopping spree for assets

Sunac China, one of the country’s biggest asset buyers in the past year, is planning to sell up to US$1 billion in dollar-denominated bonds to raise funds to refinance its debt, after a six-month, 100 billion yuan (US$14.9 billion) shopping spree for theme parks, a video streaming company and a carmaker.

The developer has been allocated the note sale quota from the National Development & Reform Commission (NDRC), with the price offered by Sunac at between 7.5 per cent and 8.5 per cent, investors familiar with the issuance told the South China Morning Post.

The bond sale follows a HK$4 billion shares placement last week to help the Tianjin-based developer pare its debt ratio and better manage its cash flow. The company had to withdraw a 10 billion yuan corporate bond sale in June for refinancing its borrowings, after failing to receive regulatory approvals.

The real estate developer, founded by Shanxi tycoon Sun Hongbin in 2003, has found itself under the Chinese regulator’s spotlight after it took on debt in its 43.8 billion yuan purchase of 13 theme parks and tourism-related projects from magnate Wang Jianlin’s Dalian Wanda Group.

“Yield between 7.5 per cent to 8.5 per cent is quite expensive, but there are not many options for Sunac, ” said RHB-OSK Securities’ property analyst Toni Ho, who recommends investors “sell” Sunac’s stock.

Moody’s on Wednesday assigned a B3 senior unsecured rating to Sunac’s proposed dollar bonds, with a “negative” rating outlook.

“The proposed notes are unlikely to materially impact Sunac’s debt leverage,” said Franco Leung, a Moody’s vice president and senior credit officer. “They will, however, improve its debt maturity profile.”

China’s banking regulator last month ordered the country’s commercial lenders to examine their credit exposure to Sunac, in the wake of its shopping spree. Sunac, whose average financing cost at the end of 2016 was 5.98 per cent, said it would refinance its existing debt levels, according to a statement.

Sunac’s net debt-to-equity ratio surged to 208 per cent at the end of 2016, from 75 per cent in 2015, the second highest among Chinese developers tracked by Morgan Stanley.

S&P Global Ratings also assigned its ‘B’ long-term issue rating to the company’s proposed bond sales, putting the developer on CreditWatch with negative implications.

HSBC, Morgan Stanley, China CITIC Bank International, Citigroup, CMB International, Haitong International, IBC, ICBC International and SPDB International have been appointed as joint global coordinators and joint bookrunners for Sunac’s bond sale.

All three of the major credit ratings agencies have warned of Sunac’s rising liquidity risks caused by its purchase of assets from Wanda. Fitch Ratings downgraded Sunac’s credit rating to “BB-” from “BB” last month. The company’s shares, which have tripled this year, fell as much as 4.8 per cent in Hong Kong to HK$19.14 in recent trading.