Cover Story: Developers Impose Deeper ‘Haircuts’ on Creditors in Latest Debt Overhauls

China’s real estate sector continues to face a deepening crisis as the protracted property slump leaves distressed developers increasingly resorting to aggressive debt restructuring, pushing creditors toward steep losses. With no evident recovery in sight, many developers have abandoned previous strategies of debt extension and now seek to significantly reduce their outstanding obligations through drastic plans that require creditors to accept severe “haircuts.” This phase marks a dangerous new chapter for the industry, with at least half of China’s top 100 developers defaulting on their listed bond debt, which is collectively valued in the tens of trillions of yuan. These restructurings often play out as fierce negotiations where failure could mean even lower repayments in bankruptcy scenarios. [para. 1][para. 2][para. 3][para. 4]

A watershed moment came in January when Sunac China Holdings Ltd. saw approval for a domestic restructuring plan that halved its 15.4 billion yuan ($2.1 billion) debt, setting a precedent for subsequent restructurings. Other firms such as CIFI Holdings and Logan Group have followed suit, though their creditor negotiations have been contentious and, at times, stalled due to resistance. The sector’s dire financial straits have become apparent as 168 major developers reported a combined net loss of 374 billion yuan in 2024, highlighting the collapse in home sales and exposing vulnerabilities in company finances. With liquidity tight, increasingly sophisticated creditors have become more assertive in negotiations, especially over the valuation of assets offered in lieu of cash repayments. Concerns are growing that asset values are being artificially inflated during these swaps. [para. 3][para. 4][para. 6][para. 7][para. 8]

Major developers like Country Garden and Sino-Ocean are engaging in new rounds of debt overhauls. For some, such as Jinke Properties, restructuring is insufficient, leading them to court-supervised bankruptcy reorganization involving vast debts—over 100 billion yuan in Jinke’s case—with possible creditor recoveries of less than 10%. Beijing has responded with calls for stronger policy support, but legal and financial experts warn that without deep operational and governance reforms, such restructurings only provide temporary relief before possible second defaults. [para. 9][para. 10][para. 11][para. 12][para. 13]

From 2021 to 2024, the value of national new home sales plunged from 18.2 trillion yuan to 9.7 trillion yuan. High leverage and rapid turnover, which fueled the sector for years, collapsed after central authorities tightened financing and presale regulations. Now, developers emphasize deeper reductions in debt, with Sunac’s model—mixing discounted buyouts, debt-for-equity swaps, and asset transfers—serving as a template. Rival plans by Logan and CIFI promise even bigger haircuts for creditors—up to 80%—but have drawn criticism for being more punitive than Sunac’s. There is a broad sense within the industry that drastic restructuring is now unavoidable. [para. 14][para. 15][para. 16][para. 17][para. 18][para. 19][para. 20]

Asset valuations remain highly contentious among stakeholders, illustrated by cases where collateral pledged for debt extension dramatically underdelivered when sold, leaving creditors almost empty-handed. Often, bondholders rank behind other claimants and find that originally promised collateral is illiquid, devalued, or already pledged elsewhere, as with R&F’s Guangzhou hotel case. Many restructuring proposals now depend on complex debt-for-asset swaps involving properties or abstract income rights, requiring creditors to judge uncertain future values with little recourse for independent due diligence. [para. 21][para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28][para. 29][para. 30][para. 31][para. 32]

Some firms now turn to the courts. Jinke’s bankruptcy restructuring covers 147 billion yuan in debt but promises ordinary creditors an overall recovery rate just above 18%, and possibly much less in practice. Legal observers doubt court-led workouts can provide a broad solution, especially for giants with intricate debt relationships like Evergrande and Country Garden. Ultimately, these measures buy time but do not address ballooning maturities—an estimated 526 billion yuan comes due in 2025—and the threat of repeat defaults. Experts suggest developers must fundamentally rebuild business models, perhaps shifting to property management or consulting. The turmoil marks the definitive end of China’s era of high-risk, high-growth real estate. [para. 33][para. 34][para. 35][para. 36][para. 37][para. 38][para. 39][para. 40][para. 41][para. 42][para. 43]