From "Turning Crisis into Opportunity" to Value Reconstruction: Sunac China (00884) Overcoming Debt Crisis and Strategic Transformation

With the overseas debt restructuring plan officially taking effect at the end of 2025, Sunac China Holdings (00884), which has gone through three years of debt-to-equity conversion, has finally achieved a key breakthrough in "reversing the predicament". As one of the first privately-owned real estate companies in the industry to complete the restructuring of domestic and foreign debt, Sunac, through a reduction of approximately 43 billion RMB in debt and the strong support of creditors, has not only solidified a strong foundation for its own survival, but also provided a benchmark practice model for market-oriented and rule-based risk disposal in the current deep adjustment phase of the real estate industry. Against the backdrop of overall industry pressure, the success of this restructuring may signal that private real estate companies are transitioning from "risk clearance" to a new stage of "value reconstruction." Three years of debt conversion efforts have improved the balance sheet Sunac's debt restructuring began in November 2022, when the real estate industry was facing continued liquidity pressure, with many private real estate companies falling into debt distress. Faced with a total of over 66 billion RMB in credit debt awaiting restructuring both domestically and overseas, Sunac did not choose to "lie down," but instead proactively launched a comprehensive debt restructuring campaign covering both domestic and overseas markets. Unlike most companies that focus on restructuring in a single market, Sunac's plan embodies a "comprehensive" and "differentiated" approach. The overseas restructuring involves a total of about 8.1 billion US dollars (approximately 56.7 billion RMB) in principal and interest, achieving a debt reduction of about 38 billion RMB through debt-to-equity conversions, principal reductions, and other means, with a debt conversion ratio of 67%; the domestic public market bond restructuring is approximately 10.06 billion RMB, through a combination of cash redemption, debt-to-equity conversions, and debt-equity swaps, with an expected debt reduction of over 5 billion RMB. This coordinated approach to restructuring, both domestically and overseas, helps to address the industry's common challenges of high credit debt levels for private real estate companies and the difficulty in disposal. This restructuring is expected to bring significant improvements to Sunac's financial structure: the company's total interest-bearing debt is expected to decrease significantly from 84.2 billion RMB at the end of June 2025 to around 50 billion RMB, making it one of the private real estate companies with the lowest debt levels. In addition, the debt structure will shift from "short-term high-interest" to "long-term low-interest," greatly reducing financial costs and substantially alleviating operational pressures. The overall asset-liability situation will also improve, laying a solid foundation for future communication and cooperation with financial institutions. The innovative design and flexible arrangements of the restructuring plan are key factors in winning the strong support of creditors. Sunac's overseas restructuring follows the framework of "deleveraging in the short term, converting debt to equity in the medium term, and preserving capital and reducing interest in the long term," providing five categories of options precisely tailored to the different demands of creditors; the domestic portion of the plan has been significantly enhanced through measures such as increasing the cash redemption ratio to 20% and raising the proportion of debt-for-equity offset to 40%, significantly increasing the overall acceptance and feasibility of the plan. As of June 30, 2025, Sunac's net assets attributable to its parent company totaled 6.4 billion RMB (approximately 7 billion Hong Kong dollars), making it one of the few private real estate companies with positive net assets attributable to its parent company before debt restructuring. The debt reduction generated by the restructuring is expected to further increase the net assets attributable to the parent company in the form of restructuring income. Combined with the restructuring of over 30 billion RMB in overseas debt by Sunac, the net assets attributable to the parent company are expected to see a significant increase after the restructuring. Currently, the company's market value is less than 2 billion Hong Kong dollars, corresponding to a potential price-to-book ratio of less than 0.1 times, indicating a significant undervaluation. The net assets attributable to the parent company are the foundation for the company's future development, and it is evident that Sunac has significant room for valuation recovery in the future. Clear strategic path to reshape sustainable operational capabilities The successful completion of the restructuring is attributed to Sunac's steadfast commitment to "guaranteeing delivery" as a bottom line of operation - it completed the delivery of 22,000 units in 2025, with cumulative deliveries exceeding 300,000 units since 2022. This solid delivery performance reflects the management's determination to prioritize limited resources for project completion and has earned the trust of creditors. The completion of the debt restructuring has cleared the main obstacles for Sunac's strategic transformation. During the restructuring period, the company clearly stated its transition to a model of "low debt, light assets, and high quality," and planned a clear recovery path. Unlike most companies that have undergone restructuring, Sunac has further defined three core business directions after the restructuring: First, focus on self-operated business, concentrate resources on quality land in core cities, and primarily focus on improving residential products to consolidate market position through enhancing product and service capabilities. With the delivery experience of over 300,000 units since 2022, Sunac's brand reputation accumulated in guaranteeing delivery will be an important support for the recovery of development business. Second, strengthen rental business. Currently, Sunac's rental property income is steadily increasing, reaching 786 million RMB in the first half of 2025. By improving operational efficiency and optimizing rent levels, rental income is becoming a stable source of cash flow for Sunac, gradually increasing its share in overall income. In addition, with credit repair and rental income growth, the company is expected to replace some of its existing development loans with operating property loans with longer terms and lower costs to further optimize its debt structure. In addition, explore asset management business. In the era of real estate inventory, comprehensive development companies with national, full-chain, and full-format capabilities like Sunac are relatively scarce. Sunac plans to rely on its deep development and operation experience to cautiously resume investment in second and third-tier cities with sustained demand for improved products by adopting an asset management model. By holding minority stakes in projects and providing asset management services to capital providers, the company is expected to achieve dual returns in equity and asset management, thereby building a new growth trajectory for the enterprise. This business system of "development + operation + asset management" preserves the core competence of real estate development and conforms to industry trends, providing diverse support for the company to reconstruct a long-term blood circulation mechanism and achieve sustainable development. It is worth noting that during the past three years of operational difficulties, Sunac has maintained a positive net cash flow from operating activities, indicating that even in a period of deep industry adjustment, the company has maintained stability at the operational level. It can be foreseen that with the completion of the restructuring, optimization of the capital structure, and reduced pressure on financing expenses, the company's cash flow situation is expected to further improve. Conclusion: Surviving is essential to competing in the industry's second half As Sunac, which has gone through the most difficult times, now stands at the starting point of a new round of development. The adjustment of the current real estate industry is not yet over, but the development logic has undergone profound changes. The model of relying on high leverage and high turnover has come to an end, and the future industry competition will focus more on low debt, strong operations, and sustainable development capabilities. Sunac's practices provide a reference sample for the industry: adhering to the bottom line of delivery during difficult times, maintaining team stability, and actively resolving debt issues through market-oriented and rule-based approaches, which are feasible paths for private real estate companies to navigate through cycles. As the label of "problematic real estate company" gradually fades away, Sunac is returning to the industry competition with a more clear strategy, stable operations, and a solid recovery foundation. Its next steps not only concern its own development but will also provide a practical reference for exploring a high-quality development path for Chinese private real estate companies.