Chinese developer Sunac China makes first principal bond payment after dollar default

Chinese developer Sunac China makes first principal bond payment after dollar default

A major developer, Sunac China Holdings Ltd., has made a local bond payment, shortly after it announced a dollar-note default, the latest example of cash first going to ailing domestic creditors.

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The bond s trustee at Sunac Real Estate Group Co. sent an initial planned payment to investors, according to two noteholders who are not authorized to speak publicly about their holdings. According to an April 1 filing, it is the first principal payment under an 18 month extension agreed by the note holders.

The due date for a 400 million yuan $59 million payment is May 15. According to an exchange filing on Friday night, Sunac China will make the first principal payment on that date.

The payment news comes a day after Sunac China defaulted on dollar debt, highlighting the growing divergence between the treatment of global investors and domestic peers as stress ripples through the real estate sector. The firm, which declined to comment, is China's fourth largest developer by sales.

The clampdown on property triggered a wave of defaults among borrowers, but holders of domestic notes have been receiving payments or sweetened offers on extension proposals, even as they were hit with a wave of defaults. In 2022, most Chinese firms' payment failures have been on offshore notes, a significant reversal from previous years that left overseas creditors with billions in losses and waning power.

As borrowers grapple with liquidity crises, the handling of local and dollar debt obligations has raised concerns about how different types of creditors are treated in China s credit markets. Offshore notes are typically subordinated to domestic peers and are not secured by onshore assets, leaving global investors with little recourse in the event of a payment failure - even when the bulk of borrower s debt is owed to those creditors.

China's local credit market has better weathered the ongoing crisis, helped by domestic lenders.

Sunac China has $7.7 billion in outstanding dollar bonds and the equivalent of $3.1 billion in local notes, according to Bloomberg-compiled data. One of the country's biggest property firms defaulted when the company said it didn't pay a $29.5 million bond coupon before the end of a grace period. Sunac also warned it wasn't likely to make payments on other securities, highlighting ongoing liquidity issues amid the sales plunge, and said it hired legal and financial advisers.

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