Country Garden US dollar bond default declared for first time
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Country Garden did not pay US$15.4 million (S$21 million) of dollar bond interest by the end of a 30-day grace period after missing the initial deadline of Sept 17.
PHOTO: REUTERS
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BEIJING – Chinese developer Country Garden Holdings was deemed to be in default on a US dollar bond for the first time ever, underscoring its fall into distress amid a broader property debt crisis
Country Garden’s failure to pay interest on the note within a grace period that ended last week “constitutes an event of default”, according to a notice to holders from trustee Citicorp International seen by Bloomberg News.
This means that the trustee must declare principal and interest due immediately if holders of at least 25 per cent in aggregate principal amount of the notes outstanding demand it. There is no indication that creditors have made any such demand yet.
The builder, among the world’s most indebted developers, did not pay US$15.4 million (S$21 million) of dollar bond interest by the end of a 30-day grace period after missing the initial deadline of Sept 17.
A default had appeared all but official after Country Garden told Bloomberg News last week that it did not expect to be able to meet all offshore payment obligations on time. The company is now likely headed for what would be one of the nation’s biggest restructuring exercises.
A spokesperson for Citigroup declined to comment about the trustee notice to Country Garden bond holders. Country Garden did not immediately offer a comment when contacted on Wednesday.
Helmed by one of China’s richest women, Ms Yang Huiyan, the developer’s sheer size has made it important to the nation’s economy, where the property market, along with related industries, accounts for about 20 per cent of gross domestic product.
The default comes just as Chinese President Xi Jinping steps up support for the economy, issuing additional sovereign debt, raising the budget deficit ratio and even making an unprecedented visit to the central bank.
In what is often a prelude to a broader restructuring, the company recently hired advisers to review its capital structure. Its dollar notes have been indicated at around five cents, showing how little money investors expect to recover, after some were near 80 cents in June. Its shares have dropped about 74 per cent in 2023.
The Citi declaration may be key for credit default swaps buyers. A panel of banks and investment managers was asked by market participants whether the missed payment triggered contracts tied to the developer, according to a notice posted on Monday.
The Credit Derivatives Determinations Committees is meeting on Wednesday at noon London time (7pm Singapore time) to discuss if a failure-to-pay credit event occurred.
It also has wider repercussion for Country Garden’s dollar bond holders who sought to organise themselves to negotiate a debt restructuring. Some creditors were already considering forming groups.
The company was the country’s largest builder by contracted sales for several years before plunging to seventh so far in 2023.
Despite that decline, it still recently had more than 3,000 housing projects in smaller cities and about 70,000 employees. Its turmoil could lead to a worse impact than from the debt failure in 2021 at distressed peer China Evergrande Group, given that it has several times the number of projects.
The Chinese authorities have been seeking to revive the real estate market after developers suffered record defaults as a builder debt crisis heads into its fourth year. The problems for the property market began in 2020 when the authorities laid out “three red lines”. Those rules set leverage benchmarks that builders had to meet if they wanted to borrow more money.
The authorities have taken several steps in recent months as they try to fine-tune policy, including a broad relaxation of down payment requirements and cuts to some mortgage rates, but these have not been enough to turn things around. Property investment contracted 9.1 per cent in the first nine months of 2023, data last week showed.
Some prospective home buyers have held back on purchases due to fears that builders might not be able to complete residences.
Underscoring the depth of the problems, Country Garden recently said its September contracted sales tumbled 81 per cent from 2022.
The company has yet to officially default on any onshore bonds. It won note holder approval in September to extend payments on nine onshore securities with a combined 14.7 billion yuan (S$2.8 billion) of principal. BLOOMBERG
