Sunac China Placement - Previous Deal Didn’t Do Much, This Won’t Move the Needle Either

Sunac Blocks - Just the Start for Sunac China and It Won't Be the Last for Sunac Services

Credit Analyst, Lucror Analytics

Chuanyi Zhou

Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

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Credit

Sunac’s H1/21 results are in line with our expectations, with improvements in contracted sales and revenue recognition, although margins contracted. Debt remained at the same level as at FYE 2020, and interest expense declined. Credit metrics continued to improve. We view the company’s deleveraging efforts positively, and expect credit metrics to strengthen further. That said, Sunac has expanded aggressively, with close to 38% of the attributable contracted sales spent on land acquisitions. During the investor presentation, Sunac announced its aims of bringing the average financing cost down to 5% (H1/21: 8%) and achieving an investment grade rating in three years. In our view, this is very ambitious given the company’s financial profile and despite the improvements over the past two years.  As of end-June, Sunac was in compliance with two of the Three Red Lines requirements, with Liabilities/Assets (excluding customer advances) at 76% (70% threshold set by the regulator). Cash/Short-term Debt and Net Debt/Equity were within the thresholds at 1.1x and 97%, respectively.

  Sunac’s H1/21 results are in line with our expectations, with improvements in contracted sales and revenue recognition, although margins contracted. Debt remained at the same level as at FYE 2020, and interest expense declined. Credit metrics continued to improve. We view the company’s deleveraging efforts positively, and expect credit metrics to strengthen further. That said, Sunac has expanded aggressively, with close to 38% of the attributable contracted sales spent on land acquisitions.   During the investor presentation, Sunac announced its aims of bringing the average financing cost down to 5% (H1/21: 8%) and achieving an investment grade rating in three years. In our view, this is very ambitious given the company’s financial profile and despite the improvements over the past two years.    As of end-June, Sunac was in compliance with two of the Three Red Lines requirements, with Liabilities/Assets (excluding customer advances) at 76% (70% threshold set by the regulator). Cash/Short-term Debt and Net Debt/Equity were within the thresholds at 1.1x and 97%, respectively. 

Sunac China - Earnings Flash - H1 FY 2021 Results - Lucror Analytics

Sunac China Holdings

Sunac China - Earnings Flash - H1 FY 2021 Results - Lucror Analytics