China Developer Sunac Explores Sale of Tourism Assets

(Bloomberg) -- Sunac China Holdings Ltd. plans to sell its vast culture and tourism business, according to people familiar with the matter, the latest developer seeking to offload assets during an industrywide liquidity crunch. 

The Beijing-based company has approached some potential buyers of the unit, though talks are at an early stage and subject to change, said the people, who asked not to be identified discussing private matters. It acquired the assets, which include hotels, resorts and amusement parks, over the past four years for about 65 billion yuan ($10 billion). 

Sunac didn’t immediately reply to a request for comment.

The country’s fourth-largest property company by sales, Sunac has faced heightened market scrutiny over its financial health since a letter from a subsidiary to a local government seeking assistance surfaced in September. Sunac later denied requesting support. 

Debt woes at developers from China Evergrande Group to Kaisa Group Holdings Ltd. have fueled investor concerns over the strength of even the nation’s biggest property firms. Soaring yields in the offshore bond market have made it tough for developers to roll over their debt, while falling home sales and prices have added to the gloom. 

While Sunac’s bonds have rallied this week amid reports that the government may ease its industry crackdown on leverage, its 5.95% note due 2024 is trading at around 72 cents on the dollar, down from more than 90 cents in September. Shares of the Hong Kong-listed company have fallen about 41% this year. 

Sunac is now China’s biggest owner of tourism property by area with a presence in 39 cities, after buying a sprawling portfolio from Dalian Wanda Group Co. for a combined 50 billion yuan in 2017 and 2018. It purchased a further 15 billion yuan of assets from a state-owned enterprise in 2019. 

The company owns 12 so-called Culture and Tourism City projects, which include malls, amusement parks and hotels. It also has several resorts, conference centers and towns, according to its website. 

Whether Sunac can pull off a sale of this scale remains to be seen. Property developers in China looking to raise funds by offloading assets are finding it hard to strike deals because many of their peers are hoarding much-needed cash. 

Sunac sold the property management arm of the tourism business to its own listed service provider for 1.8 billion yuan earlier this week. 

Despite being closed for a few months last year during the worst of the coronavirus outbreak, Sunac saw a 36% jump in revenue and 311% surge in operating income for the culture and tourism business last year, according to its annual report. 

Even so, the business only contributed 1.7% to the group’s revenue, at 3.9 billion yuan, a filing showed. 

Sunac met two of the “three red lines” metrics set by Beijing to cap leverage in the sector, with its 76% reading on liabilities to assets missing the 70% target. Companies have until mid-2023 to meet the guidelines. 

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With assistance from Bloomberg