Cover Story: Developers Impose Deeper ‘Haircuts’ on Creditors in Latest Debt Overhauls
By Wang Juanjuan, Chen Bo and Han Wei
As China’s real estate slump drags on with no recovery in sight, distressed developers are shifting toward more aggressive debt restructuring for survival, forcing creditors to swallow deep losses.
The strategy marks a perilous new chapter in the country’s years-long property crisis. Companies are now slashing tens of billions of yuan from their liabilities through restructuring plans that often hinge on creditors accepting severe “haircuts” — or risk getting even less in bankruptcy.
This approach follows a milestone set in January when Sunac China Holdings Ltd. approved a domestic restructuring plan that cut its 15.4 billion yuan ($2.1 billion) debt by more than half. The move established a precedent for other developers, now lining up with similarly radical plans to restructure debt.
That pivot has increased tensions between property companies and their creditors. In late June, CIFI Holdings Group Co. and Logan Group Co. Ltd., two high-profile firms, hit roadblocks in their domestic debt restructuring efforts as bondholders resisted. At least half of China’s top 100 developers have defaulted, and listed bond debt across the sector totaling in the tens of trillions of yuan, turning negotiations into a tug-of-war over the future of China’s property sector.
“By 2025, all real estate companies understand that they must restructure and reduce their debt,” a bond credit analyst said. “The fantasy that sales alone can repay debt is over.”
For three years, developers relied on an “extend and pretend” approach, rolling over debt in hopes of a market rebound. But home sales have collapsed, worsening property companies’ finances. In 2024, 168 major developers reported a combined net loss of 374 billion yuan, according to Guosheng Securities.
With limited cash, the negotiating table has become a battleground. Sophisticated creditors, including hedge funds and asset managers, have grown more assertive. At the core of the dispute: the valuation of assets offered in debt swaps, a feature of nearly every restructuring plan.
“The assets being used to offset debt are all over the place,” said a Shanghai-based private equity investor. “Their value is unclear and often inflated.”
A growing list of developers — including Country Garden Holdings Co. Ltd. and Sino-Ocean Group Holding Ltd. — are pursuing new rounds of debt overhauls. Country Garden aims to finalize its offshore plan by year-end while crafting an onshore solution.
For some developers, restructuring isn’t enough. Jinke Properties Group Co., once a regional powerhouse, has turned to court-supervised bankruptcy reorganization to handle more than 100 billion yuan in debt. Some creditors may recover less than 10%.
Rising stress levels have drawn fresh scrutiny from Beijing. A June 13 State Council meeting called for stronger measures to stabilize expectations, boost demand and resolve risks. But legal and financial experts say balance-sheet tactics won’t cure structural flaws.
“Restructuring is a temporary relief,” said Zhao Kuncheng, a partner at King & Wood Mallesons, a global law firm with deep roots in China. “Without governance and operational fixes, developers risk a second default.”
Deeper haircut
Increasingly, property companies are shifting from deferral to drastic reduction. Between 2021 and 2024, the value of national new home sales plunged from 18.2 trillion yuan to 9.7 trillion yuan, according to the National Bureau of Statistics. Sunac, once a top-three builder, saw its sales crater from 600 billion yuan to 47 billion yuan in the same period.
“High leverage, high turnover” defined the industry for years, Zhao said. That model broke down when Beijing tightened financing and restricted access to presale funds, exposing underlying solvency issues.
“Without cutting debt significantly, many simply can’t survive,” said a distressed developer executive.
Sunac paved the way with a late-2024 onshore restructuring that offered a mix of discounted buyouts, debt-for-equity swaps and asset transfers. Its 8.85-billion-yuan debt reduction became a model, analysts say.
Logan and CIFI proposed similar plans for their 22 billion yuan and 10 billion yuan in domestic bonds, respectively. But their offers drew criticism for being stingier than Sunac’s.
According to private equity calculations seen by Caixin, Logan’s proposal would reduce its debt by 75.4%, CIFI’s by 80.6% and Sunac’s by 69.4%.
“We are at the stage of second restructurings,” said one real estate executive. “Investors will resist, but we have no choice.”
The trust deficit
As negotiations grow more combative, creditors are finding that pledged assets may be worth far less than advertised. Over 100 developers have defaulted on roughly 1.66 trillion yuan in onshore and offshore bonds, according to rating firm Ratingdog.
Developers initially extended debt by pledging project equity. But as sales dried up, the value of collateral eroded. Bondholders rank behind banks, employees and tax authorities for repayment.
“Project income must first be used to ensure home delivery, then to pay employee salaries and taxes,” said a financing manager at a distressed developer. “Any surplus must then pay off the project’s secured debt, like development loans from banks. Only the remaining can be distributed to shareholders.”
The case of CIFI provides a stark illustration. To secure an extension for a domestic bond in 2023, CIFI pledged equity in one of its projects in Chongqing, which it valued at around 700 million yuan at that time. But in April this year CIFI sold the entire project to a state-owned firm. After paying off bank loans and other costs from the sale proceeds, just 2.25 million yuan was left for bondholders — less than half a percent of the originally promised value.
“CIFI sold the collateral at a deep discount during a market downturn,” said a researcher at a private equity firm. “This case shows that junior creditors have absolutely no say in the disposal of the assets backing their claims.”
R&F provided another example of creditors’ struggle. The developer pledged a Guangzhou hotel as collateral. But the property was already mortgaged to Citic Bank. When R&F defaulted, the bank foreclosed, leaving bondholders empty-handed.
What troubled bondholders more is that the valuations presented by developers during restructuring negotiations are often inflated, creating a massive gap between what was promised in the previous round of debt extensions and what is being offered in the current, more drastic debt-slashing deals.
“Debt restructuring requires compromise, but right now the risks and costs are almost entirely borne by the creditors,” said one bond investor. “Some of the restructuring plans being proposed are worse than just entering bankruptcy, where at least we could get a clear accounting of the assets.”
Risky bargain for asset swaps
Central to the new restructuring plans is a mechanism called “debt-for-asset swaps.” This is a preferred option for many developers, as it allows them to offload liabilities by exchanging them for assets. But the valuation and liquidity of such assets are often in question.
In CIFI’s proposed 10 billion yuan restructuring, for instance, the asset-swap option is designed to absorb up to 6 billion yuan of debt, far more than the caps for cash buyouts or debt-for-equity swaps.
The assets being offered are a complex mix of physical properties — like apartments, parking spaces and hotels — and more abstract “income rights” tied to specific assets or equity. While taking direct ownership of a physical building is legally simplest, most assets come with strings attached, said Yu Hao, a partner at Beijing-based Commerce & Finance Law Offices. Their value depends on future cash flows or asset sales that are highly uncertain.
The deals are complex by design. Logan’s plan offers creditors the choice of swapping 100 yuan of debt for 34 yuan worth of physical assets plus 1 yuan in cash, or converting it into trust units backed by a portfolio of commercial properties. CIFI’s plan offers 36 yuan in trust units based on book values with no third-party valuation or fixed maturity.
This leaves creditors in a difficult position, forced to assess the value of properties in a falling market, with little ability to conduct independent due diligence. The conflict boils down to a fundamental disagreement over valuation.
“The calculation logic of different stakeholders is different,” an executive in charge of debt disposal at a distressed developer said. “The real issue is not just valuation, but whether the assets can ever be monetized.”
In practice, determining the true value of any given asset is nearly impossible, said a lawyer. “Recovery depends more on the conscience of the developer than legal structure,” he said.
Turning to the courts
Bankruptcy reorganization has become a last resort for some borrowers. Jinke’s court-approved plan covers 147 billion yuan in debt. It keeps core assets in the listed entity and places troubled projects into a trust for creditors.
The result is a brutal haircut. According to Jinke’s disclosures, the plan offers an overall recovery rate of just over 18% for ordinary creditors. Some believe the actual rate is below 10%.
Jinke’s restructuring is seen as a pilot for court-led workouts. China Fortune Land Development Co. Ltd., which has struggled for years to execute a 219.2-billion-yuan workout plan, has also applied for court-led reorganization, according to sources familiar with the matter.
Experts doubt this model can be widely applied. “Jinke’s plan separates the company from its projects, saving the shell but not the business,” one legal expert said.
Giant developers like Evergrande or Country Garden have complex debt webs that defy clean splits. And bankruptcy is no guarantee of survival: more than a dozen listed developers have already been delisted after their stock prices fell below the required minimum. Jinke’s own stock price remains dangerously low.
Whether through negotiated agreement or court order, these restructurings may offer a temporary reprieve. But they don’t solve the fundamental problem. With an estimated 526 billion yuan in debt maturing in 2025, a figure higher than in 2024, the risk of second defaults looms.
“After the credit shock, developers need to rebuild operations,” said Fang Chengqi, a real estate analyst at Soochow Securities. He suggests lighter business models, such as property management and consulting, could point the way forward.
It’s a painful transition — and a definitive end to China’s high-octane real estate boom.
Contact reporter Han Wei (weihan@caixin.com)
caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.
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