Sunac’s Credit Rating Cut by Fitch on ‘Acquisitive’ Approach 

Sunac China Holdings Ltd.’s credit rating was cut deeper into junk status by Fitch Ratings, which cited what it called the company’s "acquisitive business approach."

Fitch lowered its score on Sunac’s rating and on its senior notes one step to BB- and placed all scores on rating watch negative. The new level is three steps below investment grade.

The move comes after Sunac agreed earlier this week to buy hotels, land and projects from Dalian Wanda Group Co. for 63.2 billion yuan ($9.3 billion), in China’s largest property deal.

Sunac’s Chairman Sun Hongbin has overseen an acquisition spree over the past year, even as some Chinese tycoons slowed acquisitions to focus on chipping away at their massive debt loads. While the deal with Wanda set a record, it also may bring Sun’s company another claim to fame: the title of China’s most indebted developer. Moody’s Investors Service said on Wednesday that Sunac’s proposed acquisition raises its financial risk, and S&P Global Ratings put Sunac on negative watch on Tuesday.

“Sunac’s financial profile has become less predictable as it continues to seek significant acquisitions to boost business scale and build its land bank,” Fitch said.

The property developer’s acquisition plan will put pressure on its leverage over the next 12 months, according to Fitch.

“The transaction will cause a spike in Sunac’s leverage in 2017 and possibly subsequent years, depending on the final terms of the transaction,” Fitch said.

Credit Risks

The acquisition price, including debt that Sunac will take on, is almost as large as the company’s net adjusted debt of 89 billion yuan at the end of last year, Fitch estimated using Wanda’s 2016 financial reports. Wanda will arrange a bank loan for Sunac to fund 29.6 billion yuan of the 63.2 billion yuan purchase, according to a Sunac stock exchange filing on Tuesday.

“The financing exposes Wanda to Sunac’s credit risk, given its role in the loan,” said Charles Macgregor, head of emerging markets at Lucror Analytics in Singapore.

The kind of financing arrangement that Sunac has with Wanda isn’t common, according to Raymond Cheng, a Hong Kong-based analyst at CIMB Securities Ltd.

“Think the key reason is that the deal size is too big and Sunac is unable to complete the deal without this arrangement," he said.

Bloomberg News
July 12, 2017, 10:30:38 GMT
Reporting by Denise Wee and Emma Dong; Editing by Andrew Monahan and Sree Vidya Bhaktavatsalam