Sunac’s founder, Ye Jianming has been fighting to save his property empire since last September when he was jailed for 12 years on charges of bribery and illegally selling land. The corruption scandal at China’s top real estate developer broke in July 2018 after an internal investigation found Sunac had bribed officials as well as sold state-owned land without permission from the government.
Sunac China, a company with over $1 billion in debt and assets, is fighting to save its property empire. The founder of Sunac China, who has been called “No Stranger to Failure,” is fighting to keep his company afloat.
Sun Hongbin was forced to sell his property firm to a competitor more than a decade ago after a Chinese government crackdown on surging house prices led it to run out of funds.
The China-born entrepreneur claimed he learnt from his mistakes and went on to start another firm, Sunac China. It evolved into one of the country’s major developers, with more than $93 billion in committed sales last year. It largely marketed flats in wealthy cities like Beijing and Shanghai.
Mr. Sun, a naturalized American citizen in his late 50s, is now attempting to save Sunac from following China Evergrande Group EGRNF -4.73 percent and other competitors into debt as a result of government-imposed borrowing restrictions.
Sun Hongbin from Sunac in Hong Kong in 2019.
Paul Yeung/Bloomberg News photo
In only a few months, Sunac’s fortunes have shifted dramatically. Many investors—and foreign credit rating firms—viewed Tianjin-based Sunac as one of the country’s strongest private real-estate developers as recently as last September. However, a selloff in Chinese property bonds and waning house buyer confidence have resulted in a protracted market dislocation and industry depression, putting many real-estate enterprises that previously raised billions via dollar bond offerings in jeopardy.
This year’s economic climate has deteriorated. A lockdown of the city’s 25 million citizens has stopped condo presales, a key source of funding for developers in Shanghai, one of Sunac’s largest markets. Sunac’s contractual sales fell 54 percent year over year in March, after a 33 percent drop in February.
According to persons familiar with the situation, Sunac missed a $29.5 million interest payment on a US dollar bond for the first time last week, and it is scrambling to come up with money within a 30-day grace period to remain alive. The corporation also missed a deadline to announce its 2021 results on March 31, resulting in a trading halt for its Hong Kong-listed shares. According to Tradeweb, Sunac’s dollar bonds were recently bid at roughly 21 cents on the dollar, implying that a default is quite possible.
Through a Sunac representative, Mr. Sun refused to comment. He dug into his own pocket late last year and gave Sunac a $450 million interest-free loan, expressing “his long-term confidence and long-term commitment to the group,” according to a business filing. According to persons familiar with the situation, Sunac has just informed offshore bondholders that the business plans to make its missing dollar-interest payment.
“He’s lost a firm before, and he doesn’t want it to happen again,” said James Wong, executive director and fixed-income portfolio manager at Hong Kong’s GaoTeng Global Asset Management. Mr. Wong said, “You can tell that he is working hard to repay and is not lying flat.”
Mr. Sun has faced difficulties before. He worked for Legend Holdings Ltd., which oversees Chinese computer giant Lenovo Group, after getting a master’s degree in engineering from Tsinghua University in Beijing in the late 1980s. Mr. Sun was convicted by a Beijing court of misappropriating 130,000 yuan ($20,153) during his employment and sentenced to five years in jail shortly after quitting the corporation.
Earlier this year, the Sunac Resort project in Haiyan, China, was under development.
Qilai Shen/Bloomberg News photo
After a year and a half in prison, he was freed and finally had his 1992 conviction overturned. Mr. Sun started Sunco Group, a residential developer, when he was released from jail in 1994. It developed quickly by acquiring land and constructing middle-income homes in Tianjin and more than a dozen other cities, all while taking on significant debt.
According to statistics from China’s National Bureau of Statistics, average house selling prices almost quadrupled during the following decade. Beijing, on the other hand, had implemented a slew of market-cooling policies by 2005.
Mr. Sun sold most of Sunco to a Hong Kong-based developer in 2006 and 2007 to avoid the firm from failing due to a lack of cash.
“A failure is a failure, and an excuse isn’t necessary.” Mr. Sun, alluding to Sunco’s problems, commented on Chinese social media five years later, “We’ve made blunders in areas like cash-flow management and growing too rapidly.”
Mr. Sun moved his focus to Sunac, the company he started before Sunco was sold, and rode the crest of another Chinese housing boom. Sunac’s contractual sales expanded from $3 billion in 2011 at current currency rates to over $90 billion in 2020 by concentrating on high-end residential complexes with gyms, theaters, swimming pools, and groomed gardens in economically affluent cities.
Mr. Sun, who used to be a popular Weibo writer, chronicled some of the company’s achievements.
He wrote one day in January 2012, “I got a call from an investor this morning,” the day after Sunac said it would purchase a controlling share in a property development project from a competitor. Sunac’s cash situation had piqued the investor’s interest, and he wanted to know whether it was stable. “I told you there was no need to be concerned about cash flow. Mr. Sun wrote, “I won’t trip over the same stone again.”
“Doing business in the real-estate market is like cultivating crops,” he said the same year. We will all have excellent harvests if the weather is nice and the rain falls when it should. There can be no harvests if there are droughts or floods.”
Earlier this year, apartment complexes were constructed at the Sunac Resort project.
Qilai Shen/Bloomberg News photo
Sunac was loaded with cash in 2017 and spent billions on growing its entertainment and tourist businesses. It spent $9.3 billion for the hotel and theme park assets of Dalian Wanda Group, a Chinese corporation, and invested in a film production firm. “With improvements in consumption, businesses like as large culture, big tourism, and big entertainment would rise explosively,” Mr. Sun said.
According to CRIC, an industry data supplier, Sunac was China’s third-largest developer by contractual sales at the end of last year. According to Forbes, Mr. Sun’s wealth grew to more than $9 billion in 2021. Sunac’s borrowings, however, increased to $47.5 billion by June 2021, due in part to a flurry of bond sales in previous years and acquisitions.
Sunac raised $500 million in July by selling dollar bonds with yields of less than 7%. Sunac’s robust sales and continuous attempts to decrease debt were underlined by Fitch Ratings, which awarded the bonds a high speculative grade rating of BB.
Then, in September, the mood of the market shifted. A document circulating online claimed to depict a request for government assistance to aid one of Sunac’s companies with financial concerns. Sunac soon clarified that the letter that was leaked was just a draft that was never delivered. Its stock and bond prices plummeted during the following several months.
Sunac moved rapidly to sell assets, raising more than $3 billion so far by selling a minority position in Ke Holdings Inc., a New York-listed Chinese real-estate brokerage, and a portion of its ownership in a property services company. It has also given state-owned developers and trusts interests in several ventures that are working on unfinished homes.
However, no developer can continue in business for long when financing channels are closed, revenues have dropped drastically for months, and debt obligations are approaching. After reducing its Sunac rating to CC, which is one rung above default, Fitch removed it this month. The corporation has billions of dollars in debt due this year, according to the report, and “diminished investor confidence” might further restrict its access to capital.
Sunac could have a bigger negative impact on market sentiment if it defaults and has to go through a long and complex restructuring like Evergrande, according to Yao Yu, founder of YY Rating, a Chinese independent credit research firm. Sunac had been managed much more prudently, but it became a casualty of the market downturn.
“Mr. Sun is a trustworthy guy,” Mr. Yao added, “but many Chinese private developers have built up debt in the past and are now experiencing the same liquidity crisis.”
Earlier this year, a motorcycle passed through the Sunac Resort development.
Qilai Shen/Bloomberg News photo
Rebecca Feng and Cao Li may be reached at [email protected] and [email protected], respectively.
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