More than a decade in the past, Sun Hongbin was compelled to promote his property enterprise to a rival after a Chinese authorities crackdown on hovering housing costs induced it to run quick on money.
The China-born businessman mentioned he realized his classes from the failure and made a comeback with one other firm, Sunac China. It bought residences in largely wealthy cities like Beijing and Shanghai and grew into one of many nation’s largest builders, with the equal of greater than $93 billion in contracted gross sales final yr.
Mr. Sun, a naturalized American citizen in his late 50s, is now making an attempt to stop Sunac from struggling the identical destiny as
China Evergrande Group
EGRNF -4.73%
and different rivals which have spiraled into default following government-imposed curbs on borrowing.
Sunac’s fortunes have modified drastically in just some months. As lately as final autumn, many buyers—and international credit standing companies—considered Tianjin-based Sunac as one of many nation’s strongest personal real-estate builders. But a selloff in Chinese property bonds and diminishing residence purchaser confidence have induced a chronic market dislocation and trade hunch that has imperiled many real-estate corporations that beforehand raised billions from gross sales of greenback bonds.
The financial backdrop has gotten worse this yr. In Shanghai, considered one of Sunac’s largest markets, a lockdown of town’s 25 million residents has halted residence presales, an vital supply of money for builders. Sunac’s contracted gross sales in March plunged 54% from a yr earlier, following a 33% decline in February.
Last week, Sunacmissed a $29.5 million curiosity fee on a U.S. greenback bond for the primary time, and it’s making an attempt to cobble collectively funds inside a 30-day grace interval to remain afloat, in line with folks conversant in the matter. The firm additionally didn’t meet a March 31 deadline to launch its 2021 outcomes, inflicting a buying and selling suspension for its Hong Kong-listed shares. Sunac’s greenback bonds have been lately bid at round 21 cents on the greenback, in line with Tradeweb, ranges that suggest a default is extremely probably.
Mr. Sun declined to remark by a Sunac spokesman. Late final yr, he reached into his personal pocket and supplied a $450 million interest-free mortgage to Sunac, demonstrating “his long term confidence and long-term commitment to the group,” an organization submitting mentioned. In current days, Sunac has additionally advised offshore bondholders that the corporate intends to make its missed dollar-interest fee, in line with folks conversant in the matter.
“He has lost a company before, so he does not want the same thing to happen again,” mentioned James Wong, govt director and a fixed-income portfolio supervisor at GaoTeng Global Asset Management in Hong Kong. “You can see that he is trying hard to repay, and is not laying flat,” Mr. Wong added.
Mr. Sun isn’t any stranger to adversity. In the late Nineteen Eighties, after incomes a grasp’s diploma in engineering from Tsinghua University in Beijing, he labored for the corporate at the moment often called
Legend Holdings Ltd.
, which controls Chinese laptop large Lenovo Group. Shortly after leaving the agency, Mr. Sun was convicted by a Beijing court docket of misappropriating 130,000 yuan, the equal of about $20,153, throughout his tenure, and sentenced to 5 years in jail.
He was launched after a couple of yr and a half and ultimately managed to get his 1992 conviction overturned. After leaving jail in 1994, Mr. Sun based a residential developer known as Sunco Group. It grew quickly by scooping up land and constructing middle-income housing in Tianjin and greater than a dozen different cities, whereas borrowing closely within the course of.
Average promoting costs of properties practically doubled over the following decade, in line with knowledge from China’s National Bureau of Statistics. By 2005, nevertheless, Beijing had rolled out many measures to chill the market.
Sunco’s liquidity grew to become constrained, and to stop the corporate from collapsing, Mr. Sun bought most of it to a Hong Kong-based developer in 2006 and 2007.
“A failure is a failure, and there is no need for an excuse. We’ve made mistakes in areas such as cash-flow management and expanding too fast,” Mr. Sun mused on Chinese social media some 5 years later, referring to Sunco’s points.
Mr. Sun shifted his consideration to Sunac, which he based earlier than Sunco was bought, and rode the wave of one other housing surge in China. By specializing in high-end residential compounds—with gyms, cinemas, swimming swimming pools and manicured gardens—in economically affluent cities, Sunac’s contracted gross sales grew from the equal of $3 billion in 2011 at present trade charges to just about $90 billion in 2020.
Mr. Sun, who was once a prolific blogger on Weibo, documented among the firm’s milestones.
“I received a call from an investor this morning,” he wrote sooner or later in January 2012, the day after Sunac mentioned it will purchase a majority stake in a property improvement undertaking from a rival. The investor had puzzled about Sunac’s money place and whether or not it was secure. “I said that there is no need to worry about cash flow. I won’t trip over the same stone twice,” Mr. Sun wrote.
That identical yr, he additionally mused that “doing business in the real-estate market is like planting crops. When the weather is good and the rain is timely, we will all have good harvests. In droughts or floods, there can be no crops.”
In 2017, Sunac was flush with money and spent billions increasing into the leisure and tourism industries. It paid $9.3 billion for the lodge and theme park property of Chinese conglomerate Dalian Wanda Group and invested in an organization that primarily does movie manufacturing. Mr. Sun predicted that “with upgrades in consumption, industries such as big culture, big tourism and big entertainment will grow explosively.”
Sunac ranked as China’s third-largest developer by contracted gross sales on the finish of final yr, in line with CRIC, an trade knowledge supplier. Mr. Sun’s fortune additionally swelled to greater than $9 billion in 2021, in line with Forbes. Sunac’s borrowings, in the meantime, additionally grew to $47.5 billion by June 2021 thanks partially to a flurry of bond gross sales within the previous years and the corporate’s acquisitions.
Last July, Sunac raised $500 million from promoting greenback bonds with coupons that have been under 7%. Fitch Ratings, which gave the bonds a excessive speculative grade ranking of BB, cited Sunac’s robust gross sales and ongoing efforts to cut back leverage.
Then, in September, market sentiment modified. A doc circulating on-line appeared to indicate a request for presidency assist to ease liquidity points at considered one of Sunac’s subsidiaries. Sunac shortly mentioned the leaked letter was a draft that was by no means despatched. In the following few months, its shares and bonds tumbled additional.
Sunac moved shortly to promote property and has thus far raised greater than $3 billion by promoting property together with a minority stake in New York-listed Chinese real-estate brokerage
Ke Holdings Inc.
and a part of its possession in a property companies enterprise. It has additionally transferred shares in some tasks engaged on unfinished properties to state-owned builders and trusts.
But no developer can keep in enterprise for lengthy with borrowing channels shut, gross sales dropping precipitously for months and going through a wall of debt maturities creeping up. This month, Fitch withdrew its Sunac ranking after slashing it to CC, which is one stage above default. It mentioned the corporate has billions of {dollars} in debt coming due this yr and “diminished investor confidence” might additional restrict its entry to funding.
Yao Yu, founding father of YY Rating, a Chinese unbiased credit score analysis agency, mentioned if Sunac leads to default and has to enter a protracted and sophisticated restructuring like Evergrande, that would have an even bigger unfavourable affect on market sentiment as a result of it had been managed much more prudently, but it grew to become a casualty of the market downturn.
“Mr. Sun is a person with integrity, but all Chinese private developers have built up leverage in the past, and are now facing the same liquidity problem,” Mr. Yao mentioned.
Write to Rebecca Feng at [email protected] and Cao Li at [email protected]
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