China property crisis: Country Garden delays US$535 million onshore bond extension deadline at last minute
- Country Garden has pushed the deadline for bondholders to vote on extending payment on the 3.9 billion yuan (US$535 million) note to August 31
- The developer wants to extend payment on the ‘16 Bi Yuan 05’ note due on September 2 by three years
Distressed Chinese developer Country Garden Holdings postponed a meeting at the last minute with bondholders who were to vote an extension plan involving a 3.9 billion yuan (US$535 million) note due next week, adding to risks of a possible default.
Country Garden, which was previously China’s largest developer, on Friday night delayed the proposal to August 31, to extend the payment on the “16 Bi Yuan 05” note due on September 2, by three years, according to people familiar with the matter.
The company held several meetings with its major bondholders since Wednesday to try to convince them to accept its proposal.
Under the initial proposal offered by Country Garden, holders of the non-public bond would have received 100,000 yuan first in October. The company also said it would repay bond holders 2 per cent of the principal amount each in October, November and December.
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The remaining principal would be paid in tranches of 10 per cent, 15 per cent, 25 per cent and 44 per cent, respectively, in September 2024, September 2025, March 2026, and September 2026.
Country Garden did not immediately reply to a request for comment from the Post.
Major bondholders include China Guangfa Bank, Bank of China, China Merchants Bank, according to Chinese media outlet Caixin. However, some of the bondholders had demanded a full repayment.
Though the company has yet to default on any of its onshore bonds, it missed two US bond coupon payments totalling US$22.5 million earlier this month and still risks defaulting on its offshore notes if it fails to make good within the 30-day grace period.
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A default by Country Garden could impact China’s housing market much harder than China Evergrande Group default in late 2021, as it has four times as many projects.
The 3.9 billion yuan note due next week is the largest of the company’s debt maturing until the end of this year. It is a litmus test for the developer on whether it can come back from the brink of default.
In addition to the privately held bond, 10 other onshore bonds of the developer have been suspended from trading since August 14.
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“A proposal [to extend it by three years] is reasonable and this was probably expected by market,” said Raymond Cheng, managing director at CGS-CIMB Securities.
“Creditors may fight for a shorter extension, but I think [an extension of at least] 2 years [is acceptable] if Country Garden compromises. It is a negotiation process and Country Garden still has a month to negotiate with bondholders if there’s a 30-day grace period.”
Edward Chan, an analyst with S&P Global Ratings, agreed that Country Garden has to do its best to reach an agreement with its creditors.
“If Country Garden defaults on its onshore bond due September 2, it could also trigger cross defaults on its offshore bonds,” Chan said. “This would put the company into an even more stressful situation.”
Country Garden and its subsidiaries face more than US$2.5 billion in coupon payments and maturities in onshore and offshore debt before the end of this year, according to an analysis by JPMorgan.
