Country Garden, China’s leading private property developer, issued a cautionary statement on Tuesday, acknowledging its inability to meet offshore debt obligations. This development places the company on the brink of becoming one of the largest participants in China’s ongoing wave of debt restructurings, which has already ensnared numerous developers.
As the Chinese real estate sector grapples with a liquidity crisis that emerged in 2021, approximately 40% of Chinese home sales, primarily involving private property developers, have defaulted on their debt obligations. These defaults have left many residential projects incomplete.
Although Country Garden has not yet defaulted, the company has missed coupon payments on some dollar-denominated bonds since last month and is fast approaching the end of a 30-day grace period for making payments.
In a filing with the Hong Kong stock exchange, Country Garden cited “significant challenges” in sales and financing, accompanied by a continuous decline in available funds. The company stated that it might not be able to meet all offshore payment obligations within their due dates or grace periods, which could result in creditors demanding payment acceleration or pursuing enforcement actions.
This warning from Country Garden underscores the extraordinary liquidity squeeze currently plaguing China’s property sector, which constitutes roughly a quarter of the nation’s economy. Despite Beijing’s recent measures to boost homebuyers’ confidence, such as reducing deposit requirements and mortgage rates, the escalating debt crisis among developers casts a shadow over prospects for recovery.
Country Garden, holding $10.96 billion in offshore bonds and 42.7 billion yuan ($5.86 billion) in offshore loans, is facing considerable uncertainty regarding the disposal of assets, and its cash position remains under pressure. The company has enlisted the services of Houlihan Lokey, China International Capital Corporation (CICC), and law firm Sidley Austin to examine its capital structure and liquidity and devise a comprehensive solution.
Country Garden has emphasized its commitment to collaborate with these advisors to find the most pragmatic and optimal solution for all stakeholders and has called for patience from creditors.
According to Morningstar analyst Jeff Zhang, the outcome of overseas debt restructuring in the next two weeks will determine whether Country Garden defaults or not. Zhang noted, “We do not expect Country Garden’s liquidity to materially improve as homebuyers and financial institutions may continue to stay on the sidelines.”
