Country Garden sells stock as liquidity worsens for China developers

Chinese property developer Country Garden is offering 870 million shares at a discount of 12.6 per cent. PHOTO: BLOOMBERG

HONG KONG (BLOOMBERG) - Country Garden Holdings is looking to raise about HK$2.83 billion (S$500.7 million) selling new shares at a discount, highlighting the sense of urgency among Chinese property developers to raise cash amid an industrywide liquidity crunch.

The country's largest developer by sales is offering 870 million shares at HK$3.25 apiece, according to a filing to the Hong Kong stock exchange on Wednesday (July 27). This represents a discount of 12.6 per cent to the shares' closing price on Tuesday.

The Guangdong province-based developer's shares plunged as much as 15 per cent, as investors priced in the dilution effect of the additional share sale. Its dollar bonds initially jumped as the company said it will use part of the proceeds to repay offshore debt, before losing some of the gains towards midday.

The placement "shows its desperation for cash amid weakening liquidity" while negative factors including rising delivery costs of presold homes, slowing contracted sales and challenges in selling bonds onshore are hurting its cash flows, Bloomberg Intelligence analysts wrote in a note.

Markets are still indicating concerns about the developer's repayment risks, with its dollar bonds still in distressed territory after it was downgraded by rating firms into junk territory from investment-grade status earlier this year. While stocks and bonds of Chinese real estate firms have risen sharply recently amid signs of growing state support for a struggling housing sector, many observers say a longer-term rebound in home sales is necessary to sustain any market rally.

In an e-mailed statement, Country Garden said the share sale will help it buy back bonds both onshore and offshore, further reducing its debt pile.

In a stunning reversal for a developer that was until recently considered one of China's safer private sector builders, Country Garden has fallen to distressed levels in credit markets in recent months. Its 6.5 per cent dollar bond due in 2024 fell to a record low of about 33 cents last week from near par at the start of this year, before rebounding to 42.6 cents on Wednesday.

Its shares are down more than 50 per cent this year, despite an 18 per cent surge earlier this week.

Country Garden's debt woes and rating slide into the junk category earlier this year formed part of a watershed moment in China's credit market, when financial stress began spreading from weaker developers to once healthy-looking peers and state-backed builders.

Stocks and bonds of builders rallied earlier this week, following a report that the authorities will set up a special fund to help developers and a matchmaking meeting between builders and financial institutions.

The developer has 36.6 billion yuan (S$7.5 billion) of domestic bonds and US$10.5 billion (S$14.6 billion) of dollar notes outstanding, Bloomberg-compiled data shows.

Join ST's Telegram channel and get the latest breaking news delivered to you.