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Sunac Downgraded to BB-; Evergrande Creditors Threaten Legal Action
January 21, 2022
China Sunac was downgraded to BB- from BB by Fitch, reflecting its decreasing financial flexibility amid high capital-market volatility. Sunac has RMB 12.3bn ($1.9bn) of onshore bonds maturing or becoming puttable by end-2022 and $600mn of offshore bonds due both in June and August 2022. About 25% of Sunac’s RMB 303bn ($47.8bn) total interest-bearing debt in H1 2021 are from non-bank financial institutions, which are less easily rolled over. This, combined with commercial bills due would hurt liquidity. Its cash and cash equivalents/short-term debt ratio stood at 1.1x and may be an insufficient buffer. Besides, falling contracted sales, negative sentiment and high JV exposure pose further risks to the developer. Sunac’s dollar bonds are trading higher with its 8.35% 2023s up 4.5 points to 67.6.
Separately, Evergrande’s creditors threatened to proceed with a legal enforcement plan accusing the developer of withholding critical information about its liabilities. The plans could potentially include liquidation of its assets. Evergrande later hired China International Capital Corp and BOCI Asia as financial advisers and Zhong Lun Law Firm as legal adviser to assist with its problems. Evergrande’s dollar bonds are trading at distressed levels of around 12 cents on the dollar.
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