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The Beijing-based property developer said ‘holistic restructuring’ of its offshore debt is the only way forward as it confronts rising liquidity challenges.

China’s real estate woes deepened on Friday as state-backed developer Sino-Ocean Group Holding suspended debt payments for all offshore debt until a restructuring was finalized. It also said it has halted trading its U.S. dollar securities in Hong Kong.

According to the Beijing-based property developer, “holistic restructuring” of its offshore debt is the only way forward as it confronts rising liquidity challenges due to a sales slowdown throughout the wider sector since 2021.

“Starting from the second half of 2021, the real estate sector in China has experienced significant changes and real estate developers have been confronted with unprecedented challenges with regard to liquidity and funding,” the company said in a Hong Kong stock exchange filing (pdf).

While Sino-Ocean Group continuously adopted measures to repay the debts, “Since 2023, in the circumstances where the industry sales and financing environment have not been notably improved, the Group has experienced a rapid decline in contracted sales and increased uncertainty in asset disposals and has continuously faced limitations in various financing activities,” according to the filing.

“Against the above backdrop, the Group believes the optimal path forward is a holistic restructuring of its offshore debts—one that ensures fair and equitable treatment to its creditors, provides a sustainable capital structure, and establishes a runway for the Group to stabilise its operations,” it said.

In August, Sino-Ocean said that its creditors had rejected the company’s plan to postpone repayment of a 2 billion yuan (about $278 million) onshore bond but agreed to give the company a one-month grace period.
Although Sino-Ocean’s financial issues have been simmering since last month, the revelation on Friday sent China’s already troubled property sector into a deeper debt crisis.

Ensuring Timely Deliveries

The now-troubled developer—which claims to be one of the top house sellers in Beijing and Tianjin with more than 600 property projects across China—does not foresee any delay in deliveries or disruptions in operations.

Sino-Ocean is pursuing significant cost-cutting and efficiency-improvement efforts to improve operating efficiencies.

“At this stage, the Group is working relentlessly to ensure delivery of completed properties pursuant to pre-sale arrangements entered into by the Group and the continuation of its business operations,” the filing said.

“The Group will concentrate all necessary resources to ensure delivery of current projects, to accelerate the sale of properties under development and completed properties and to stabilize its business operations to protect the interests of the home buyers, the Group’s partners and all stakeholders,” it added.

The company also announced the appointment of Houlihan Lokey (China) Ltd. as finance consultant and Sidley Austin as legal counsel.

Property Woes to Continue

Sino-Ocean’s problems add to growing concerns about China’s real estate sector, which faces new challenges almost daily, including a continual loss of homebuyer confidence.

The National Bureau of Statistics’ 70-city house price data released on Friday revealed that the weighted average property price in the primary market fell sequentially in August after seasonal adjustments.

The decline in sequential growth of house prices was most prominent in tier-3 and tier-4 cities, while the proportion of 70 cities that experienced sequentially higher property prices declined in both the primary and secondary markets in August.

On Thursday, Moody’s downgraded its outlook for China’s property sector, given that weaker economic growth prospects and concerns over on-time project completion and delivery will continue to weigh on homebuyers’ confidence and demand for the next 6–12 months, according to its estimates.

“The economic recovery from a prolonged zero-COVID policy remains muted, as the reopening momentum seen in March, April and May appears to be waning. As a result, low consumer confidence has held back household spending, including property purchases,” Moody’s said.

Although regulators could announce more measures to help the property market, the rating agency said that using the property market to boost economic growth goes against Beijing’s goal of reducing debt and rebalancing the economy toward domestic consumption and high-productivity sectors in the medium to long term.

Sino-Ocean is unsure if it will be out of the woods soon.

Many factors outside of the company’s control will need to be in place for a comprehensive solution to the offshore debt issue, the filing said.

Given the lack of certainty, the company advised holders of securities and other investors to consider the relevant risks and exercise caution when dealing with them.

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