The company has been seeking feedback from some major holders, including some hedge funds, since last week, to restructure about 15.5 billion yuan (US$2.2 billion, or RM9.48 billion) of onshore bonds, the people said, asking not to be identified as the plan isn’t public. Sunac aims to disclose its proposal for domestic creditors as early as November, they said. 

Sunac declined to comment on Tuesday. The debt plan under discussion is preliminary and could change. 

The onshore debt plan taking shape would mark progress in a sector where restructuring efforts have so far focused on overseas bondholders and lenders, many of whom have sought liquidation orders against Chinese defaulters in Hong Kong courts. Local creditors of distressed firms, in contrast, have been subject to piecemeal solutions, such as payment delays that offer less transparency, certainty and enforceability. 

If the plan goes ahead, Sunac would be only the second major Chinese property defaulter, after China Fortune Land Development Co, Ltd, to unveil a holistic local debt restructuring blueprint. Sunac would also avoid debt repayment to local creditors in the first five years, one person said.

According to the plan under consideration, local creditors could choose from four options, each with a limited quota, the people said. Upon approval, about half of the company’s onshore notes could be wiped out through measures such as haircuts and below principal conversions.

In the first option, Sunac would buy back about five  billion yuan of notes in principal value with a steep haircut of 85%, using proceeds it raised last month from a top-up placement. 

A highlight of the plan comes from a debt-to-equity option using Sunac’s Hong Kong-listed shares. Sunac would convert some of its onshore debt into 300 million to 400 million Hong Kong-listed shares at HK$8-HK$10 (US$1.03-US$1.29) a share, the people said. Bloomberg reported the consideration on Monday. 

The debt-to-equity option “stands out,” said Li Kai, chief investment officer of Beijing Shengao Fund Management Co. “It may improve chances of bondholder approval over the plan. Other distressed Chinese developers may follow suit in their onshore debt overhauls,” he added.

Under another option, Sunac would also tap receivables from a land development project, the people said. The rest of the notes would be extended by as much as 9.5 years, with coupons all reduced to 1%. 

Once among the country’s five biggest developers, Sunac was also the first major Chinese builder to reorganise its offshore debt late last year.