Sunac China: The deal Goldman might want to forget

Fingers point at Goldman Sachs for Sunac China bond botch up.
Sunac China aborted its US dollar bond
Sunac China aborted its US dollar bond

PRC property developer Sunac China’s aborted US dollar bond will probably go down as one of the messiest deals of the year.

At first, it was assumed that all three banks were equally culpable for the failed transaction. But market participants have pointed their fingers at Goldman Sachs, suggesting that the firm was more responsible than the rest for the deal falling apart.

Deutsche Bank, Goldman Sachs and Standard Chartered Bank were joint bookrunners on the trade. Among the three banks, Goldman Sachs was said to be closest to the client, which was described as being “difficult to handle”.

Apparently, at the heart of the failed transaction, was the presentation made at the Hong Kong roadshow. This was said to have contained financial projections that had not yet been made public. This was a problem for the issuer as this is considered selective disclosure, which goes against the Hong Kong Stock Exchange guidelines.

According to sources, the banks divvied up the roles and Goldman Sachs was responsible for the roadshow presentation materials. The bank is also said to have played a lead role in the Hong Kong roadshow. How the figures made it into the presentation is a mystery.

Market participants suggested that the company may have asked to have the slides included at the last minute and this was included without proper vetting by a junior analyst or another banker at Goldman Sachs.

Earlier this week, Sunac China investor relations manager Feng Yanhong told Bloomberg that Goldman Sachs was “in charge of marketing materials” for the bond offer and the inclusion of 2011 financial projections raised compliance concerns.

However, subsequently, the company said that Feng was unauthorised to discuss the matter and that her comments did not represent the company’s views. The sudden turnaround is curious to say the least. Did the company suddenly come under pressure to retract its comments? Or was it partly responsible for the inclusion of those figures?

The net roadshow, which was signed off by all three banks, was said to not have included any previously unreleased financial projections. However, post the roadshow briefing, the legal departments of the banks involved decided to pull the deal.

Lines of communication clearly broke down. Among the three banks, Goldman Sachs lacks a head of debt syndicate for Asia – a position it has been trying to fill for some time. Having an experienced head of syndicate would certainly have helped in managing a difficult client and co-ordinating a deal.

To be sure, the high-yield bond was a tough sell from the start. Traders pointed out that the company’s chairman has a patchy record. Sun Hongbin, the chairman of the company, was jailed in 1992 on a conviction of misappropriation of funds. He was later granted remission of sentence and released on March 1994. In 2003, the conviction was overturned following an appeal by Sun.

Goldman Sachs declined to comment. Deutsche Bank declined to comment. A spokesman for Standard Chartered Bank said: “We do not comment on client matters.” Sunac China could not be reached for comment.

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