Tuesday 23 July 2019

Sunac buys $1.9bn of projects as China's housing market cools

Betting big: Sunac is deepening its investment in housing in Bejing (pictured) and Shanghai — even as China enters a predicted “year of recession”
Betting big: Sunac is deepening its investment in housing in Bejing (pictured) and Shanghai — even as China enters a predicted “year of recession”

Paul Panckhurst

Sunac China Holdings Ltd., the developer known for its aggressive debt-fuelled expansion, is buying projects in Beijing and Shanghai for almost $2bn just as the nation's property market cools.

Sunac is paying 12.6 billion yuan ($1.9bn) to purchase Oceanwide Construction Holdings Co., it said in a statement last Monday. The acquisition is a mix of debt and equity.

The housing market in Asia's biggest economy is entering what China International Capital Corp. has forecast will be a "year of recession." Sunac is at risk from tighter liquidity and rising funding costs because of its 232 percent net debt-to-equity ratio, with 34pc of debt maturing within a year, Bloomberg Intelligence reported last month.

Still, property analysts forecast that real estate will fare better in 2019 in the larger cities - such as Beijing and Shanghai - than in the smaller ones, where caps on shantytown-redevelopment spending may inhibit demand. And while Sunac stands out for its debt, the firm has also been a leader for profit growth.

The Beijing project that Sunac is acquiring is in the city's Chaoyang district, and mainly focused on residential, commercial, office and hotel sites. The Shanghai project, in Huangpu district, is for residential and commercial development.

National housing sales in China may tumble 10pc this year, HSBC Holdings Plc analyst Michelle Kwok said in a report earlier this month. However, the residential market is "far from entering a severe downturn," she wrote.

Sunac has lately been in the news because of Chairman Sun Hongbin joining fellow tycoons in transferring $17bn of their wealth into family trusts as China toughens its tax regime.

Sun's transfer, made on New Year's Eve, was for $4.5bn. In 2017, his fortune more than tripled, the latest twist in a career that has involved a stint in jail and the forced sale of a developer he once predicted to become the nation's largest. Sun and his family members are beneficiaries of the trust. His son, Kevin Zheyi Sun, was appointed as a Sunac executive director in May 2017. He was 27 at the time.

Sunac's stock has been in decline since its 2017 peak after an ill-fated attempt to offer a lifeline to Internet company Leshi Internet Information & Technology.


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