Chinese developer Country Garden default on dollar bond declared for the first time in trustee notice to bondholders
- Country Garden’s failure to pay interest on the note within a grace period ‘constitutes an event of default’ trustee Citicorp International tells bondholders in a notice
- The property developer did not pay US$15.4 million of dollar bond interest by the end of a 30-day grace period after missing the initial deadline of September 17
Chinese developer Country Garden Holdings was deemed to be in default on a dollar bond for the first time ever, underscoring its fall into distress amid a broader property debt crisis that has shaken the world’s second-biggest economy.
Country Garden’s failure to pay interest on the note within a grace period that ended last week “constitutes an event of default,” according to a notice to holders from trustee Citicorp International seen by Bloomberg News. That means the trustee must declare principal and interest due immediately if holders of at least 25 per cent in aggregate principal amount of the notes outstanding demand it. There is no indication that creditors have made any such demand yet.
The builder, among the world’s most indebted developers, did not pay US$15.4 million of dollar bond interest by the end of a 30-day grace period after missing the initial deadline of September 17. A default had appeared all but official after Country Garden told Bloomberg News last week that it did not expect to be able to meet all offshore payment obligations on time. The company is now likely headed for what would be one of the nation’s biggest-ever restructurings.
A spokesperson for Citigroup declined to comment about the trustee notice to Country Garden bondholders. The builder did not immediately offer a comment when reached Wednesday.
Helmed by one of China’s richest women, Yang Huiyan, the builder’s sheer size has made it important to the economy, where the property market along with related industries accounts for about 20 per cent of gross domestic product. The default comes just as Chinese President Xi Jinping steps up growth support, issuing more sovereign debt for infrastructure spending, raising the budget deficit ratio and even making an unprecedented visit to the central bank.
In what’s often a prelude to a broader restructuring, the company recently hired advisers to review its capital structure. Its dollar notes have been indicated around 5 cents, showing how little money investors expect to recover, after some were near 80 cents in June. Its shares have dropped about 74 per cent this year.