Sunac's Bond-to-Share Gambit: A High-Risk Play for Survival in China's Real Estate Crisis

As China’s property sector grapples with its deepest crisis in decades, Sunac China Holdings Limited has unveiled a bold restructuring plan to convert offshore bonds into equity—a move that could either revive its balance sheet or deepen its vulnerabilities. The proposal, part of a broader $15.4 billion onshore debt restructuring, hinges on convincing bondholders to swap debt for shares in its Hong Kong-listed entity, betting that the shares will rebound from historic lows.

The Conversion Mechanism: A Complex Dance of Debt and Equity

Sunac’s offshore bondholders face a critical decision by April 3, 2025: convert up to CNY 3 billion of their bonds into equity through an offshore trust, or opt for cash, asset-backed securities, or extended debt. Under the equity option, every CNY 100 of principal converts to roughly 13.5 new shares of Sunac China, potentially creating 400 million new shares. However, bondholders won’t hold shares directly. Instead, the trust will liquidate the shares over time, with proceeds distributed to creditors—a structure designed to shield Sunac’s capital structure while providing liquidity.

The timeline is tight: the trust must finalize disposals by December 31, 2025, but share sales may stretch into 2026 if markets are uncooperative. This raises a critical question: Will Sunac’s shares recover enough to make this a viable exit?

The Risk Equation: Market Volatility Meets Structural Uncertainty

The plan’s success hinges on two variables: Sunac’s share price and the trust’s ability to execute sales. The company’s stock has plummeted 85% since 2021, reflecting broader sector declines amid China’s property slump. Even if the trust sells shares at current prices, bondholders would realize losses. For instance, at today’s price of ~HK$0.50 per share, a CNY 100 bond converts to HK$6.75 in proceeds—far below the principal.

Bondholders opting for equity also face governance risks. The trust’s structure centralizes control over share sales, but its managers’ incentives and market timing decisions could amplify losses. Meanwhile, the CNY 3 billion cap limits participation, forcing smaller creditors to prioritize other options like the 20% cash tender or asset-backed trust units.

Broader Restructuring Context: A Multi-Pronged Survival Strategy

The offshore bond conversion is one pillar of Sunac’s four-part restructuring:
1. Cash Tender: A 20% upfront repayment (capped at CNY 800 million).
2. Asset-Backed Trusts: Debt converted into units tied to specific assets (valued at CNY 35 per CNY 100).
3. Debt Extension: Remaining bonds matured to 2034 with 1% interest at final payment.

This mosaic of options reflects Sunac’s desperation to avoid default while preserving cash. The equity conversion, however, stands out as the riskiest component, requiring faith in a stock rebound that has eluded peers like Country Garden and China Evergrande.

Historical Precedents: A Pattern of Aggressive Restructuring

Sunac is no stranger to dramatic debt reorganization. In late 2023, it converted USD 1.0 billion of offshore bonds into a nine-year convertible note and settled another USD 775 million in shares of its services arm, Sunac Services. While those moves averted immediate collapse, they diluted existing shareholders and underscored Sunac’s reliance on financial engineering over operational turnaround.

Why Now? The Pressure of China’s Property Crisis

The restructuring is a direct response to the sector’s freefall since 2021, when regulatory crackdowns on shadow financing and Evergrande’s collapse triggered a liquidity spiral. Sunac’s sales dropped 60% in 2022 alone, and its debt-to-equity ratio hit 150%—levels unsustainable without external support. The offshore bond conversion aims to shrink debt by converting it into equity, but it risks further dilution if share issuance outpaces recovery.

Conclusion: A Gamble With High Stakes

Sunac’s offshore bond-to-share plan is a high-stakes bid to stabilize its capital structure, but its success hinges on factors beyond its control. Key considerations:
- Share Price Recovery: At current valuations, bondholders face steep losses. A rebound would require a sector-wide turnaround, which remains unlikely without policy stimulus.
- Trust Execution: The offshore trust’s ability to time sales and navigate market volatility will determine creditor payouts.
- Sector Dynamics: China’s property market needs a sustained sales recovery to justify equity valuations, but demand remains constrained by debt overhang and economic sluggishness.

With CNY 15.4 billion in onshore debt and a deadline looming, Sunac’s gamble could redefine its fate. For investors, the plan is a test of patience: those betting on a cyclical rebound may hold, while skeptics will prioritize cash and asset-backed options. The real estate crisis has taught us that survival in this sector demands both financial agility and a stroke of luck—a lesson Sunac is now banking on.