HONG KONG – Chinese property giant Country Garden is seeking to delay payment on a private onshore bond for the first time, a source said, after suspending trading in 11 onshore bonds, sending its shares plunging to a record low on Monday.

Anxiety spread through markets following the worrying news from Country Garden, putting Beijing under mounting pressure to deliver support for the ailing real estate sector in order to shore up confidence in a stuttering economy.

Once considered a more financially sound developer, Country Garden shares dived 18.4 per cent to 80 Hong Kong cents on Monday, dragging down the Hang Seng Mainland Properties Index which dropped 3.7 per cent. The stock has lost 50 per cent so far in August.

Some offshore markets, including Britain’s exporter-heavy FTSE 100, edged lower on Monday, as worries mounted over China’s economic recovery and its debt-laden property market.

Country Garden’s difficulties could have a chilling effect on home buyers and financial institutions, with more private property companies close to a tipping point if financial support does not materialise soon.

Two Chinese listed companies said over the weekend that they had not received payment on maturing investment products from Zhongrong International Trust, adding to the stress in a financial market already roiled by a property sector downturn.

A core pillar of China’s economy, the real estate sector has suffered tumbling sales, tight liquidity and a series of developer defaults since late 2021, with China Evergrande Group at the centre of the debt crisis. Weak overseas demand, tepid domestic consumption and persistent problems in the property sector have been major factors in the economy’s struggles to mount a solid post-Covid-19 recovery, as shown by another set of weak data released last week.

Country Garden’s offshore bonds also eased, with a few trading at the lower end of six cents on the dollar earlier. Most have since firmed slightly.

The firm proposed to creditors to extend repayment for an onshore private bond due Sept 2, with an outstanding of 3.9 billion yuan (S$732 million), by three years in seven instalments, a source with direct knowledge said on Monday.

In separate filings over the weekend, the firm said it will suspend trading in 11 of its onshore bonds starting from Monday, in a move that traders said usually signals plans to seek repayment extensions. In September alone, Country Garden may need to repay more than nine billion yuan worth of onshore bonds.

The suspension of its onshore bonds followed a report by Chinese media outlet Yicai last Friday that the company was heading for a debt restructuring, after it missed payments of two dollar bond coupons due on Aug 6 totalling US$22.5 million (S$30.5 million).

Shares of its property management unit, Country Garden Services, fell more than 10 per cent.

According to company registry portal Qichacha, a services unit of Country Garden offloaded its 51 per cent stake in a Wuhan-based network technology company. The chief strategic officer of Country Garden Services also resigned.

Country Garden’s woes are adding to spillover concerns across a property market already grappling with weak buyer demand.

“The problems in the sector have been brewing for a long time. It wiped off the wealth effect among investors and no one wants to buy property now,” said Mr Dickie Wong, executive director at Kingston Securities.

‘Critical moment’

Mr Wong said the sector’s impact on the economy has reached a “critical moment” and that regulators should implement more policies, including further cutting interest rates and reserve ratios.

State-owned firm China Jinmao said in a filing on Sunday that it expects to post an 80 per cent decline in net profit in the first half of 2023 due to a drop in gross profit margin in some projects and a decrease in land development revenue. Its Hong Kong-listed shares slumped 4.1 per cent on Monday.

Shares and bonds of Longfor Group and Seazen Group, two remaining larger private developers that are considered financially healthy, have been under pressure since the debt troubles in Country Garden came to light. They dropped 1.8 per cent and 3.6 per cent respectively on Monday.

In an effort to boost market confidence, Longfor has transferred funds worth 1.7 billion yuan ahead of the repayment date for an onshore bond maturing on Thursday, a source with direct knowledge said.

The Beijing-based developer recently also repaid early another HK$3.2 billion (S$554 million) of a HK$15.3 billion five-year syndicated loan due in January 2024, making early repayments totalling HK$7.2 billion so far, the person said, adding that the firm plans to repay the remaining amount by the end of 2023. REUTERS