Country Garden default looms as grace period expires for debt payment
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A default by Country Garden would deepen the crisis roiling China's property sector.
PHOTO: REUTERS
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HONG KONG – Distressed Chinese builder Country Garden Holdings signalled it is set for a first-ever default as its grace period ends for a US dollar bond interest, in the latest sign of a deepening property crisis.
“The company expects that it won’t be able to meet all of its offshore payment obligations on time, due to a deep correction in China’s home market and its subdued sales,” the developer said in a statement about its plans for the US$15 million (S$20.5 million) of interest due.
Country Garden hopes to seek a “holistic solution” to its problems, it said, adding that keeping the firm as a going concern would help relevant parties.
The comments from the country’s former top developer come after a holder of the note, on which the interest is owed, said they had yet to receive money as at 9am Hong Kong time.
Non-payment would trigger cross defaults in other Country Garden bonds
Its statement did not directly address the question of whether there had been a default and representatives of the company declined to comment.
“If they don’t pay within the grace period, it will be a default,” said Mr Cedric Rimaud, analyst at Gimme Credit, an independent corporate bond research house, referring to Country Garden’s missed payment.
Country Garden’s US$187 billion of total liabilities make it one of the world’s most indebted builders.
It first warned last week that it did not expect to be able to meet all future offshore payment obligations, language which it echoed in its statement on Wednesday.
That had been the firm’s strongest indication yet that it was poised for a default and restructuring.
Scores of other Chinese property developers have defaulted, reeling from liquidity problems since 2021 when the government introduced measures to rein in the sector’s very high debt levels.
The industry accounts for one-fourth of China’s economic activity and its prolonged woes have dragged on the world’s second-biggest economy, often rattling global financial markets.
Country Garden’s missed payment comes on the heels of an investigation into the chairman of beleaguered peer China Evergrande, which has also defaulted and has been at the centre of the sector’s debt crisis.
Shares in Country Garden have lost some 70 per cent of their value in 2023, but gained some ground on Wednesday, rising 2.7 per cent.
Bond holders say they expect the debt to be restructured.
“We are ready to walk away with some losses, but just hope the restructuring process could be efficient and less painful when compared with other companies like Evergrande,” said a US asset manager holding Country Garden’s dollar bonds, who declined to be identified.
China has rolled out a flurry of support measures in recent months to revive the property market, but private developers are still struggling to source new capital, according to a CreditSights report published on Tuesday.
“With home buyers still biased towards state-linked developers, those privately run developers still not yet in a default would likely find staying afloat an increasingly challenging prospect, squeezed by both insufficient contracted sales generation and funding inaccessibility,” the report said.
Data on Wednesday showed property investment in China slid 9.1 per cent for the first nine months of 2023. Sales by floor area dropped 7.5 per cent.
Nationwide prices of new homes for September will be released on Thursday.
Developers accounting for 40 per cent of Chinese home sales have defaulted on their debt obligations since 2021, according to JPMorgan.
Those companies, mostly private, have issued around US$110 billion worth of high-yield offshore bonds.
Hong Kong’s Hang Seng Mainland Properties Index is down 40 per cent so far in 2023. REUTERS, BLOOMBERG
