Sunac China (HK: 1918) (OTC: SCCCF), the troubled Mainland property developer, dropped 50% in Hong Kong today on its return from a 12 month suspension from the stock exchange. It's difficult to say that this was unexpected given the events of the past 12 months - indeed, the reason for the suspension from the exchange in the first place. It's worth noting that the Sunac shares haven't dropped during the day - they tried a rally and fell back n fact - but they opened that 50% own. That's why we might say it's not unexpected. All the share price action of the past 12 months was concentrated into that opening bell moment.
As to why Sunac China is down, why the suspension, it's the debt burden of course. China has been getting vastly richer faster than anywhere else has ever done it. That means boom times - and where there are booms there just are bubbles. That's just how markets work out in reality. One such bubble has been in the property market. A standard result of this is people taking on debt in order to produce for projected demand. But the very definition of a bubble is that demand doesn't quite keep up with projections of it. That's really what a bubble is, people getting just too excited about that near future. So, some of the market participants are going to gear up - borrow - to meet demand that never quite arrives. Again, just what happens.
Sunac China share price from Hong Kong Stock Exchange
What matters then at the macroeconomic scale is what the authorities do. Both about the market itself and those over-extended through excessive debt. But at the corporate level such debt burdens have to be worked through. A standard analysis of debts that cannot be paid is that such debts will not be paid. Simple enough, implicit in that “cannot be paid” in the first place. So, a debt reorganisation took place at Sunac.
Now, who loses what at this point is always a matter for negotiation. How much pain the equity will have to bear, how much is dumped upon bondholders. Will losses be crystalised or shoved over into opportunity costs (ie, lower interest rates on extended terms which are real losses, but don't have to be accounted for as such) and so on.
Sunac has been able to convert the old bonds and notes into new ones on new terms - this is all about the offshore lenders of course. When we add back in the supportive macroeconomic policies this means that there is still something left for the equity after the default back a year. But more than nothing is still less than before that default - as is right, equity should take some of the pain. Thus the opening that 50% lower for Sunac on the return to the stock market listing.