HONG KONG (Reuters) – China is facing a slowdown that has shaken global markets, with the spotlight now focused on Country Garden Properties’ distressed debt crisis in the real estate sector, which accounts for about a quarter of gross domestic product. Economy.
Country Garden on Thursday pushed back the deadline for creditors to vote on whether to delay payments of 3.9 billion yuan ($537 million) in private bonds until Friday at 1400 GMT, saying it wanted to give bondholders enough time to prepare for the vote.
The vote is a major hurdle as Country Garden struggles to avoid default, with one of its dollar bond holders saying that if the company cannot roll over its domestic debt, it will not be able to service overseas bondholders.
Who is Country Garden and why do people care about its debt problems?
Until this year, Country Garden was the largest Chinese development company in terms of sales. The company was considered financially sound compared to peers such as China Evergrande Group (3333.HK) which defaulted on its debt in 2021.
While Country Garden’s liabilities only account for 59% of Evergrande’s, it has 3,103 projects across China, compared to about 800 for Evergrande – making the company important for systemic stability while also stoking contagion fears as Showing signs of financial stress.
A Country Garden default would exacerbate the country’s escalating real estate crisis, put more pressure on its local lenders, and could delay prospects for recovery not only in the real estate market, but in the Chinese economy as a whole.
How bad is Country Garden’s financial situation?
Country Garden’s total liabilities amounted to about $194 billion at the end of June, unchanged from the end of 2022, based on its financial results for the first half.
It faces 108.7 billion yuan ($14.9 billion) in debt due within 12 months, while its cash levels are around 101.1 billion yuan.
The company’s liquidity pressures became public early last month after it missed two dollar coupon payments. It is also in talks with its internal creditors to extend 3.9 billion yuan of special bonds due on Saturday.
Country Garden also has dollar coupon payments on its other offshore bonds due each month for the rest of 2023. It has onshore bond payments totaling 12.6 billion yuan by the end of the year, according to CreditSights.
Will Beijing save Country Garden and what is the outlook for the developer?
Beijing has so far not directly bailed out any private Chinese developers, although some have been on the verge of collapse since the real estate crisis hit the economy in 2021, following a regulatory crackdown on developers’ debt pile-up.
However, in Evergrande’s case, the provincial government of southern Guangdong Province, where the developer is based, stepped in to help manage the fallout from its destabilizing financial crisis in late 2021.
Currently, the Chinese authorities are striving to introduce a series of measures, including mortgage interest rate cuts and easing restrictions on home purchases, to revive the real estate market and support the faltering economy.
However, the outlook for Country Garden is getting worse.
Moody’s lowered the company’s credit rating by three notches to Ca from Caa1 on Thursday over concerns it could be on the brink of default. It said Country Garden faces tight liquidity and recovery prospects for bondholders may be poor.
Country Garden itself also warned on Wednesday of the risk of default if its financial performance continues to deteriorate, and said it was “deeply remorseful” for its record first-half loss.
Xie Yu reports. Editing by Sumit Chatterjee and David Holmes
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