Country Garden misses a bond payment, signals possible default on part of its US$16.5 billion offshore debts as China’s housing slump persists
- Chinese developer did not pay a HK$470 million (US$60 million) principal when due, signalling possible default on its offshore borrowings
- Contracted home sales tumbled for a sixth month in September, filing shows, depriving firm of critical source of cash flow
The Chinese developer failed to repay a HK$470 million (US$60 million) principal under its indebtedness, according to a stock exchange filing in Hong Kong on Tuesday. The company expects that it will not be able to meet all of its offshore payment obligations, including dollar-denominated bonds, it added.
Such non-payment may lead to relevant creditors demanding acceleration of payments or pursuing enforcement actions, it said, adding that it would cooperate and engage all creditors to reach a feasible solution.
The developer, based in Foshan in southern Guangdong province, hired China International Capital Corp and Houlihan Lokey as its joint financial advisers, and Sidley Austin as its legal adviser, to evaluate its capital structure and liquidity.
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China’s “three red lines” policy, unveiled in August 2020 to curb excessive leverage among weak developers, has continued to claim fresh victims as consumer confidence in home builders cracked. Country Garden has missed payment deadlines on bond coupons in recent months, crashing its stock and bond prices.
Country Garden had 257.9 billion yuan (US$35.8 billion) of interest-bearing debt on June 30, according to its latest interim report. Among its 118.5 billion yuan of non-yuan debt, one-third was denominated in the US dollar and 11 per cent in Hong Kong dollar, mostly in senior notes and corporate bonds.
Its total liabilities stood at 1.3 trillion yuan versus 1.43 trillion yuan at the end of 2022.
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Its shares slumped 10.7 per cent to HK$0.75 at the close of Tuesday trading, while its most-active US dollar bonds, maturing in January 2024, fetched about 7 cents on the dollar, according to Bloomberg data.
Helmed by China’s third richest woman Yang Huiyan with US$8.2 billion fortune according to Forbes, Country Garden was the nation’s biggest homebuider before nationwide sales plunged in 2021.
Country Garden’s contracted home sales fell to 6.17 billion yuan in September, the company said in the same exchange filing, from about 8 billion yuan in August. They compared with 32 billion yuan recorded in September last year, depriving the developer of a crucial source of cash flow.
The latest fallout at Country Garden comes as peer China Evergrande Group faces challenges in its own debt restructuring, following the “arrest” of its chairman and founder Hui Ka-yan, and investigations into the financial affairs of its main onshore unit Hengda Real Estate.
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Given the debt exposure to China’s banking system, analysts said any crisis from these major developers will add more pressure on the Chinese economy, which has seen a slowdown this year despite several rounds of stimulus measures to ensure project completion and pre-empt social disorder.
New home sales during the golden week were 17 per cent and 24 per cent below the levels captured during the same holiday in 2022 and 2019, despite policy support in the form of cheaper mortgage rates, according to data in major mainland cities tracked by China Real Estate Index System.
