Sunac China Holdings (HKG:1918) shares are up 27% today. The rise in Sunac shares really isn’t quite what we would expect. Because this is not about general relief about the real estate market in mainland China. Instead, it’s about a proposed special dividend from the company, which is one of those things we really wouldn’t expect given the current troubles in mainland China’s real estate market. pay out capital? A bit strange and hence the price reaction.
The news himself: “Sunac Services Holdings Limited has proposed payment of a special dividend of not more than HK$0.235 per share (the “Special Dividend”) to the shareholders of the Company (the “Shareholders”) whose names are on the register of members of the Company on the Relevant Record Date at its board meeting on September 14, 2023.” OK, that’s a different company, but some of it is flowing through sound. “Previously, its subsidiary SUNAC SERVICES (01516.HK) announced a proposed special dividend of up to 23.5 cents per share. As a result, parent company SUNAC was expected to receive more than $465 million in dividends.”
And this is where it starts to make sense. Because Sunac is, at least recently, the subject of calls to do so coiled: “A Hong Kong court has ruled to withdraw a liquidation lawsuit against Sunac China Holdings Ltd. , removing a hurdle to the developer’s $9 billion debt restructuring.”
We’ve had that a few times too weeks back: “Sunac China Holdings Ltd. joined real estate developer Country Garden Holdings Co. and became a penny stock after announcing a $2 billion net loss for the first half.” Shares of the Chinese construction company plunged 13% to 0 in Hong Kong on Monday, HK$97 and closed below HK$1 for the first time. After a 79% year-to-date decline, Sunac’s market value has shrunk to just $675 million, a fraction of its $28 billion peak.” And a few too months back: “Chinese real estate developer Sunac China Holdings Ltd (1918.HK) lost more than half of its market value on Thursday after resuming trading, posting results and agreeing to a debt restructuring after more than a year of suspension.”
All of which helps explain what’s really happening here.
Sunac China Holdings
Sunac China Holdings Stock Price from Google Finance
The way we would tell this story. Like many Chinese real estate companies, Sunac China is somewhere between deep in the quagmire and on the verge of bankruptcy. There should be debt restructuring. There is some capital within the group, but that was at the service level. This special dividend allows it to be deferred to the group level and used to underpin the new group level debt structure. It makes balance sheet reconstruction easier/more likely. This moves the stock price.
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