China property developer Country Garden expects to post loss due higher impairment provisions

China’s biggest property developer Country Garden Holdings urged “guidance and support from the government” as the debt stricken company estimated it would report a loss for the first half of the year.

The company, whose bond prices have been under tremendous pressure despite signing earlier this month a dual tranche loan deal, has significant bond maturities coming up later this year. It is expecting to record an unaudited net loss in the six months to June 2023. It posted a net profit of around 1.9 billion yuan (US$265 million) and a core net profit of around 4.91 billion yuan during the same period a year ago.

“The expected net loss was primarily attributable to the decrease in gross profit margin for real estate business and the increase in provision of impairment for property projects under the impact of the downward trend in sales of the real estate industry,” the company said in a filing to the Hong Kong stock exchange on Monday, which also blamed the loss on foreign exchange fluctuations.

Even before the announcement, analysts had started downgrading their views on the company, which is 53 per cent controlled by Chinese businesswoman Yang Huiyan.

Last week, HSBC analysts downgraded their fundamental recommendation on the company’s bonds to “underweight” from “neutral”, saying the peak offshore debt repayment will be in December 2023 and January 2024, for which the company would require US$2 billion in total. It said the company’s onshore maturities would peak in September 2023, when slightly more than US$1 billion-equivalent will be due for repayment.

The developer said on Monday it is actively considering “various countermeasures to ensure the security of cash flow, including but not limited to reducing various operating expenses, accelerating loan collection arrangements, actively expanding financing channels, and managing and optimizing debt repayment arrangements”.