Country Garden posts record $9.2b first-half loss, warns of possible default

SHANGHAI – Country Garden Holdings warned that it may default on its debt and raised concerns about staying in business after the embattled Chinese developer posted a record first-half loss of 48.9 billion yuan (S$9.2 billion).

The property developer said that if its financial performance continues to deteriorate, the group might not be able to meet its debt obligations, “which may result in default”, according to a filing on Wednesday. It also cited “material uncertainties” that may cast “significant doubt on the group’s ability to continue as a going concern”.

The warnings highlight how

China’s deepening real estate crisis

has battered one of its property giants. Once the country’s biggest developer by sales, Country Garden is in a debt spiral that may be worse than rival China Evergrande Group’s because it has four times as many property projects. 

The housing slump adds to wider concerns about the world’s second-largest economy, where the authorities remain reluctant to adopt stronger stimulus to reverse the slowdown. Signs of contagion from the housing woes have grown in recent weeks, from

missed payments by one of China’s biggest shadow banks

to a bond rout among Hong Kong developers.

Country Garden faces a critical test of investor confidence on Thursday, with creditors set to vote on its proposal to extend the maturity for an onshore private bond. The vote, which is expected to conclude by 10pm Singapore time, will be a key hurdle Country Garden will have to overcome as it strives to avoid default. It is unclear how quickly the results will be made available to the bondholders.

Country Garden has been talking to its onshore creditors to extend a 3.9 billion yuan private bond due on Saturday.

According to the extension plan, Country Garden will repay the onshore private bond in seven instalments ending in September 2026. Three initial instalments will be made in 2023, with 2 per cent of the principal each. The coupon will be kept at the same rate at 5.65 per cent and paid annually.

The company is also seeking to add a 40-day grace period for the repayment of the bond, which is yet to be approved by onshore investors.

Country Garden’s bonds are already trading at severely distressed levels, with a US$1 billion note maturing in January trading at less than 13 cents on the dollar. It is now a penny stock after shares plunged 67 per cent in 2023 in Hong Kong.

The developer’s results reflect the steep decline in China’s housing market. Its net loss of 48.9 billion yuan in the six months ended June 30 compares with a profit of 612 million yuan a year earlier.

Country Garden earlier in August warned of a potential loss of as much as 55 billion yuan – the biggest since its 2007 listing in Hong Kong.

Even though revenue rose 39 per cent for the period, it posted a massive loss due to a decline in property sales volume and prices, and rising impairments for properties under development and on financial and contract assets, Country Garden said in the filing.

“The group’s liquidity is under unprecedented pressure with a dual tightening of sales and financing,” according to the filing.

Country Garden acknowledged that it did not adopt timely measures to deal with the slowdown and failed to recognise the risks of its heavy reliance on lower-tier property markets.

“The profundity and persistence of the market’s downtrend still caught the company off guard,” the company said. It added it will consider adopting various debt management measures to resolve the “phased liquidity pressure” to maintain stable operations and preserve value for investors.

At the same time, Country Garden said it may be able to meet its financial obligations over the next 12 months, given anticipated cash inflows, cost controls and other plans and measures, including talks with creditors.

“Despite the current difficulties, the group will continue to ensure delivery with a high sense of responsibility and make every effort to reverse the situation,” the developer said in the filing.

It “firmly believes” that the real estate industry will eventually turn stable and healthy, Country Garden added.

China’s property slump has been worsening, with new home sales falling the most in a year in July. The central government last week unveiled a further easing of its mortgage policies to halt the housing slowdown.

The country’s largest banks are preparing to cut interest rates on existing mortgages and deposits to shore up growth, people familiar with the matter said on Tuesday. Economists said the measures probably will not be enough to do so. BLOOMBERG, REUTERS