Sunac Shocks Market with Major US Bankruptcy Filing, Following Evergrande's Collapse

Sign up for CNN's Meanwhile in China newsletter to stay updated on the country's rapid growth and its global implications.

Sunac, a prominent property developer in China, has recently applied for bankruptcy protection in the United States. This follows the approval from its creditors to restructure debts amounting to nearly $10 billion.

The company submitted a petition to the US Bankruptcy Court for the Southern District of New York on Tuesday, seeking Chapter 15 protection. This marks the second instance in recent weeks of a major Chinese developer in financial distress seeking such protection. Evergrande previously filed for Chapter 15 in the United States a month ago, following substantial losses of $81 billion over the past two years.

The court has the authority to intervene in cross-border insolvency cases in order to facilitate collaboration among US courts, debtors, and other jurisdictions. This process aims to enhance cooperation in cross-border bankruptcy proceedings.

By embarking on this process, Sunac China may be able to negotiate with foreign creditors as it takes steps to restructure its debt.

Content must be written in English:

In a filing to the Hong Kong stock exchange on Monday, the company announced that it had received approval from over 2,000 creditors to restructure its debt and interest payments of approximately $9.9 billion owed to investors outside of China.

According to CreditSights, Sunac was ranked as the 10th largest property developer in China in terms of contracted sales in August. However, it dropped to the third largest before it defaulted in 2022.

Its success in securing a deal with overseas creditors could provide a roadmap for other distressed developers to get back on their feet.

A Chinese homebuyer visited the booth of Sino-Ocean Land Holdings Ltd at a real estate fair in Shanghai, China, on March 15, 2013. The top management of Sino-Ocean Land Holdings Ltd, a real estate developer listed on the Hong Kong stock exchange, stated that China's high-end senior living market is expected to thrive. On August 6, 2015, Li Jianbo, the company's vice president, announced that Sino-Ocean Land will launch its fourth senior living project in Beijing by the end of the year. Sino-Ocean Land entered the high-end senior living market in August 2013 by partnering with Emeritus Corp, the largest assisted living provider in the US, and opening its first community on the outskirts of Beijing. Since then, two more projects have been launched in Beijing. Li emphasized that although the company is primarily known as a real estate developer, its senior living projects provide more than just living space for seniors. The company's main focus is to provide professional senior care services. Sino-Ocean Land's senior living communities feature intricate interior designs that prioritize the safety of residents and offer personalized services tailored to residents' individual health conditions. The company has partnered with Meridian Senior Living LLC, a US senior living provider, to introduce "Validation" therapy developed by Naomi Feil. This therapy aims to assist seniors suffering from Alzheimer's disease and other dementia-related illnesses.

China's property market faces further turmoil as a prominent developer halts its debt repayments. Sandra Chow, co-head of Asia Pacific research at CreditSights, revealed that this developer was the first in its industry to receive such approval. While smaller developers had made comparable agreements, their monetary value was considerably lower, Chow informed CNN.

Evergrande, the formerly powerful Chinese developer that defaulted in late 2021, is also seeking to reorganize its overseas debt. However, it has faced difficulties in convincing foreign creditors due to its less advantageous terms, according to Chow. Speaking about this, she mentioned that while Evergrande is still facing challenges in gaining support from its offshore creditors, Sunac has surpassed them in this aspect.

Sunac's shares in Hong Kong closed down by 4.3% on Tuesday after announcing its US bankruptcy filing, erasing earlier gains. The company, along with other Chinese real estate developers, is suffering from a deteriorating cash flow due to a sales decline in the industry, leading to difficulties in debt repayment.

Creditors gather to protest at a meeting room in Chinese real estate conglomerate Evergrande Group Building in Shanghai, China on September 23, 2021.

Sayaka Nanbu/AP

Evergrande's woes deepen after police detain staff at its shadow bank

Sunac's total liabilities peaked at a staggering 1 trillion yuan ($137.6 billion) as of the conclusion of the previous year, coinciding with a 50% decline in sales in 2022 when compared to the preceding year, as per its most recent annual report. Chow mentioned that the company's latest restructuring endeavors would provide it with "some additional flexibility."

However, the main problem persists - the main business is in need of assistance, she stated.

Chinese policymakers have recently introduced a range of measures to aid the struggling industry, such as reducing home buyer requirements. However, the crucial question now is how this policy support will ultimately contribute to boosting their sales and improving the core business. This will be the focal point, she emphasized.

Despite the recent flurry of efforts aimed at revitalizing the crisis-hit industry, concerns persist. Country Garden, which was China's largest homebuilder just a few months ago, continues to hover on the verge of default.

Report contributed by Andy Rose.