Sunac China’s shares soared in Hong Kong after the troubled developer said it had satisfied conditions for a long-awaited offshore debt restructuring deal – the first of its kind since the crisis in China’s property sector erupted.

The company’s shares jumped as much as 26.6 per cent to HK$2.95 on Tuesday, before closing at a two month high of HK$2.61, a rise of 12 per cent which added HK$2.47 billion (US$320 million) to the developer’s market value. A gauge tracking mainland developers listed in Hong Kong advanced 2.1 per cent, after sliding to an all-time low earlier this month.

Sunac’s existing debt instruments were exchanged for a combination of convertible bonds, dollar-denominated notes, mandatory convertible bonds and shares in its subsidiary Sunac Services Holdings, totalling about US$10.2 billion, according to a filing on Monday.

The workout plan was approved by the High Court in Hong Kong last month. The revamp was backed by creditors representing over 98 per cent of claims during a September vote.

A worker walks past scaffolding at the Sunac Resort project construction site, developed by Sunac China Holdings, in Haiyan, Zhejiang Province. Photo: Bloomberg

The restructuring is a “landmark deal” and “marks a significant milestone for the Chinese property market”, as Sunac is the largest among the property companies seeking to restructure their debt, Sunac’s legal adviser Sidley Austin said in a statement on Tuesday.

China’s property sector has witnessed more than US$100 billion of bond defaults since Beijing’s “three red lines” policy three years ago crippled home builders’ financials and their ability to raise funds. The default rate for high-yield property bonds has reached 42.2 per cent so far this year, only slightly below a record 46.8 per cent in 2022, according to Goldman Sachs.

Sunac China wins court approval for plan to repay US$10.2 billion to creditors

Country Garden, once considered a healthy private developer, plunged into distress this summer and missed a US$60 million coupon payment in October. The firm is now working to pull together a tentative plan to restructure its offshore debt by the end of this year, according to a Reuters report. China Evergrande Group, meanwhile, awaits a final hearing next month as its insolvency process continues.

Meanwhile, policymakers in Beijing have been rolling out new stimulus measures in recent weeks to prop up the stricken property sector. These measures include mortgage rates cuts, down-payment reductions and a push for urban infrastructure upgrades. But there has been little reaction in markets, and the sector is yet to show any signs of a reversal.

Regulators are now drafting a white-list of 50 developers eligible for a range of financing, a Bloomberg report said on Monday. The list, which includes both private and state-owned developers, is intended to guide financial institutions as they weigh support for the industry via bank loans, debt and equity financing, the report said.

Analysts said the outlook remains gloomy for the sector. The default rate for Chinese high-yield property dollar bonds will remain elevated next year as property sales continue their slide, putting more strain on already stressed liquidity conditions, Goldman Sachs said.

While refinancing provides temporary relief, it fails to resolve the causes of developers’ shaky finances, said Brock Silvers, managing director at Kaiyuan Capital in Hong Kong. “Refinancing may just kick the can down the road until more pre-sold housing can be delivered,” he said.

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