Sunac China Holdings (HKG: 1918) shares are up 27% today. Sunac shares rising like this is really not, not quite, what we’d expect. For this is not about some general relief about the China Mainland property market. Instead it’s about a proposed special dividend from the company, Which is one of those things we’d really not expect given the Mainlaind China property market woes at present. Paying out capital? Somewhat weird and therefore the price reaction.
The news itself: “Sunac Services Holdings Limited proposed payment of special dividend in the amount of not more than HKD 0.235 per share (the "Special Dividend") to the shareholders of the Company (the "Shareholders") whose names registered on the register of members of the Company on the relevant record date at its board meeting to be held on 14 September 2023.” OK, that is a different company but some of that does flow through into Sunac. “Earlier, its subsidiary SUNAC SERVICES (01516.HK) had announced a proposed special dividend of up to 23.5 cents per share. As a result, its parent company SUNAC was expected to receive more than $465 million in dividends.”
And that’s where it begins to make some sense. For Sunac has, recently at least, been subject to demands that it be wound up: “A Hong Kong court granted an order for the withdrawal of a liquidation lawsuit against Sunac China Holdings Ltd., removing a hurdle to the developer’s $9 billion debt restructuring.”
We also had this a couple of weeks back: “Sunac China Holdings Ltd. joined fellow property developer Country Garden Holdings Co. to become a penny stock after warning of $2 billion in net loss for the first half. Shares of the Chinese builder slumped 13% in Hong Kong on Monday to HK$0.97, closing 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 peak at $28 billion.” And also this a few months back: “Chinese property developer Sunac China Holdings Ltd (1918.HK) lost more than half its market value on Thursday after resuming trade following a suspension of more than a year, having released results and agreed a debt restructuring.”
All of which aids in explaining what is really happening here.
Sunac China Holdings share price from Google Finance
The way we would tell this story. Sunac China is somewhere between deep in the mire and near bust like many China property companies. There is to be a debt reorganisation. There is some capital within the group but that was at the Services level. This special dividend allows that to be moved up to group level and be applied to underpinning the new debt structure at group level. It makes a reconstruction of the balance sheet easier/ more likely. Thus the share price move.
