Chinese property developer Sunac became the latest company in the sector to default, as strict lockdown measures to combat the country’s Covid-19 outbreak exacerbate a liquidity crisis across the real estate sector.
The company said in a statement to the Hong Kong exchange on Thursday that it had failed to make payments on one bond ahead of a deadline this week. It said there was “no assurance” it would be able to make others worth over $70mn before grace periods expire this month.
The missed payments from Sunac came as part of a wider cash crunch across China’s property sector, which first emerged last year and has weighed on the country’s wider economy. The highly leveraged industry is subject to intense scrutiny in international bond markets, where borrowing costs have soared, making it difficult for developers to fund their projects.
China’s real estate crisis originally centred around missed payments from Evergrande, the world’s most indebted property developer with more than $300bn in liabilities, after Beijing introduced rules in 2020 designed to rein in property developers’ debt.
In its statement to the Hong Kong exchange, Sunac said its access to new financing has “not been notably improved” since the start of the year.
Its comments also suggested that a series of strict and often indefinite lockdowns imposed across Chinese cities to halt its worst coronavirus outbreak in two years were compounding the crisis.
Shanghai, the country’s leading financial centre, has been locked down since late March with little indication of when the restrictions may be lifted. Investment bank Nomura this week estimated 41 cities were under full or partial lockdown, affecting almost 300mn people.
Sunac pointed to the “liquidity issues” that emerged within the sector last year but also said that its sales had been “significantly affected by the Covid-19 outbreak”, plunging 65 per cent in March and April this year.
Another developer, Zhenro Properties, last month blamed the “unforeseen scale and duration” of a lockdown in Shanghai for its own default.
The default of Evergrande, which first began missing payments in September and was not declared to have defaulted until December by rating agency Fitch, has symbolised the dramatic reversal of fortunes for the sector. It is now in the early stages of what is expected to be China’s biggest-ever restructuring.
In March, Fitch downgraded Sunac to double C and said it faced about Rmb17bn ($2.5bn) in maturities over the rest of 2022.
The company said it had hired financial adviser Houlihan Lokey, which is also advising Evergrande.