The clock is ticking on Chinese developer Country Garden Holdings Co. to avoid what would be its first default.
(Bloomberg) — The clock is ticking on Chinese developer Country Garden Holdings Co.
to avoid what would be its first default.
The builder that has about $187 billion of total liabilities — making it among the most indebted property firms in the world — must pay a combined $22.5 million in dollar note interest within a grace period that ends Sept.
5-6. That’s the next major test after it honored some coupon payments in recent days and secured an extension on some yuan obligations.
Failure to pay the dollar interest within the grace period would allow creditors to call a default, which could risk worse fallout than from China Evergrande Group’s in 2021, given Country Garden has four times more property projects.
It told creditors it had yet to make the dollar interest payments, people familiar with the matter said Sunday.
While the firm’s other debt payments and extensions, along with policy support for the housing market, lifted its shares 14.6% Monday, it remains down 61.8% this year.
Most of its dollar notes are still indicated at deeply distressed levels ranging from 9 cents to 13 cents even after rising Monday.
The moves came amid a broader rally for Chinese developers, after authorities late last week tweaked policy to allow the largest cities to cut down payments for homebuyers.
Bloomberg reported Sunday that Country Garden, helmed by one of China’s richest women, Yang Huiyan, had wired a coupon payment coming due on a ringgit-denominated bond.
The 2.85 million ringgit ($611,850) coupon is effectively due Sept. 4.
The builder also won crucial breathing room on a maturing yuan note. It received sufficient support in a vote that ended late Friday to stretch payments on the 3.9 billion yuan ($537 million) of outstanding principal into 2026, according to filings to the Shanghai Stock Exchange’s private disclosure platform that were seen by Bloomberg News.
The security had a Sept. 2 maturity, which meant it was to effectively fall due Sept. 4, the next business day.
“Despite the ringgit coupon repayment and the extended onshore bond, we do not believe that Country Garden’s funding conditions have significantly improved, though the company might be incentivized to repay dollar bond coupons to avoid any cross-default,” said Zerlina Zeng, senior credit analyst with CreditSights.
“The ability of Country Garden and most privately-owned developers to stay afloat still hinges on a meaningful and sustained recovery of home sales, which we still view as challenging.”
The builder is important to Chinese financial markets and the nation’s economy due to its sheer size, with more than 3,000 housing projects in smaller cities and about 70,000 employees.
Country Garden’s fate is in the spotlight as China’s broader property debt crisis heads into its fourth year.
Markets were jolted when it missed the initial deadline for the dollar bond interest payments last month, with Chinese junk dollar bonds—largely issued by builders —falling to their lowest levels this year at distressed levels under 67 cents.
The developer’s coupon payment of the ringgit bond ignited some hope that it may pay the dollar interest within the grace period, according to Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group.
But in the longer term, the firm still faces challenges including weak contract sales and resistance from the market to further lending, she said.
The problems for the property market — which along with related industries accounts for about 20% of the world’s second-largest economy — began in 2020 when authorities laid out “three red lines.” Those rules set leverage benchmarks builders had to meet if they wanted to borrow more money.
Such policies were intended to help curb years of excessive debt-fueled expansion by builders and property speculation by homebuyers.
But they wound up tipping a record number of developers into default as refinancing costs surged, and leading to a string of restructurings.
Now, with slumping home sales dragging on efforts to revive a slowing economy, authorities have been tweaking policy.
In addition to the steps late last week on down payments, authorities also encouraged lenders to lower rates on existing mortgages.
For Country Garden, more tests loom.
It recently posted an unprecedented net loss of 48.9 billion yuan while attributable sales, a key source of developer funding, fell 35% through July.
Meanwhile, it still faces more than $2 billion of potential note obligations for the rest of this year.
Below is a calendar of Country Garden bond principal and interest payments across currencies potentially due just in September, including the ringgit interest:
–With assistance from Jackie Cai, Qingqi She, Xinyi Luo and Wei Zhou.
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