Sunac May Prelude New Wave of Developer Defaults: Street Wrap

2022-05-12 10:13:47.536 GMT

By Wei Zhou, Dorothy Ma and Alice Huang

(Bloomberg) -- Sunac China Holdings Ltd. became the country’s latest property firm to default, after missing its final deadline to pay a dollar bond coupon. That failure by China’s fourth-largest developer underscores the sector’s continued liquidity stress and may herald a fresh wave of debt blowups among weakened peers, analysts say. 

Explaining the setback, Sunac said its ability to access new financing has remained difficult, and has been compounded by the recent Covid-19 outbreak in China that’s deepened an industry sales slump. It also warned that it doesn’t expect to make good on other bonds.

Sunac is China’s biggest developer to miss a public bond payment this year. Its default caused shares and junk-rated dollar bonds of peers to extend a recent losing streak Thursday, reflecting concerns that more cash-strapped borrowers may suffer the same fate in the coming months. Here’s what analysts and investors had to say about the implications of Sunac’s woes: 

Lucror Analytics

- Sunac’s missed payment may “be a prelude to a fresh wave of defaults among weak private developers that are teetering on the brink,” said credit analyst Leonard Law in emailed remarks

- Developers’ cash crunch has been exacerbated by poor contracted sales amid China’s lockdowns and their access to financing remains elusive”

- Sunac’s liquidity will remain tight and it needs to dispose of more assets, Law’s colleague Shu Hui Woon wrote in a note

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- With assistance from Lorretta Chen.