(Yicai) Jan. 22 -- Shares of Sunac China Holdings closed lower after the firm secured a deal to halve its CNY15.4 billion (USD2.1 billion) of onshore debt, making it the first troubled Chinese property developer to get creditors to approve such a restructuring.

Sunac [HKG: 1918] ended down 4.2 percent at HKD1.59 (21 US cents) a share in Hong Kong today, after surging by as much as 7.8 percent in the morning. The Hang Seng Index lost 1.6 percent. Sunac’s stock is down about 30 percent so far this year.

The Tianjin-based company, one of China’s biggest builders, announced late yesterday that it will rearrange the principal and interest repayments for all 10 bonds after their holders agreed to its second onshore debt restructuring plan.

The landmark deal sets a precedent for other distressed Chinese developers amid the property market slump. Data from the CRIC Research Institute shows that builders have CNY525.7 billion (USD72.2 billion) coming due this year. Industry insiders expect more to put forward big debt restructuring plans.

“Sunac has become the first builder to complete the restructuring of onshore debts, which gives certain insights into the debt restructuring of other Chinese builders,” an analyst told Yicai. “More and more developers who have defaulted will likely learn from Sunac's restructuring when converting their debts.”

Previous onshore debt restructuring plans from Sunac and other large developers mainly focused on credit enhancement and extensions, without directly reducing liabilities.

Sunac completed the first onshore and offshore restructuring, involving about CNY90 billion, in November 2023. The firm unveiled the second restructuring blueprint last November, aiming to pare local debt by about half, ensuring that it would avoid a debt repayment crisis in the next five years. The plan offers creditors several options, including cash repurchases, equity payments, asset-based debt settlements, and long-term debt extensions.

Discounted repurchases, debt-to-equity swaps, and other debt pruning tools can help shrink debt at the source, help Sunac avoid a debt crisis, and gain the time needed to restore liquidity and enhance its value, which in turn provides space for debt repayment, said Liu Shui, enterprise research director at the China Index Academy.

Between 2009 and 2014, Sunac quickly turned into one of China's top 10 developers from a mid-sized builder, but that brought hidden risks. After the real estate market ran into trouble, Sunac defaulted in May 2022.

Due to the unexpectedly sharp market downturn, Sunac extended the principal and interest payments on its onshore public market bonds due last June and September to the end of 2024 while pushing forward with a comprehensive and long-term solution, the company said in its first-half earnings report.

Given the weaker-than-expected performance of the real estate market, Sunac is seeking a more comprehensive overseas debt restructuring solution, according to people familiar with the matter. 

Editors: Tang Shihua, Martin Kadiev