©Reuters. Workers exit a construction site of residential buildings of Chinese developer Country Garden, in Tianjin, China, August 18, 2023. REUTERS/Tingshu Wang/File Photo
By Xie Yu
HONG KONG (Reuters) – Chinese developer Country Garden said on Wednesday that a liquidation notice has been filed against it for non-payment of a $205 million loan, clouding its debt rollover prospects and undermining its Beijing’s efforts to restore confidence in the real estate sector.
Country Garden said in a regulatory filing that it will “resolutely” oppose the petition, which was filed by a creditor, Ever Credit Limited, a unit of Hong Kong-listed Kingboard Holdings, opens a new tab.
The petition is set to revive homebuyers’ and creditors’ concerns about China’s real estate debt crisis at a time when Beijing is trying to boost confidence in the sector that accounts for a quarter of China’s GDP.
WHAT DO WE KNOW ABOUT THE COUNTRY GARDEN?
Until 2023, Country Garden was China’s largest developer in terms of sales. The company was considered financially sound compared to other competitors such as China Evergrande (HK:) Group, defaults on its debt in 2021.
Although Country Garden’s liabilities are only 59% of Evergrande’s, it has 3,103 projects across China, compared to Evergrande’s roughly 800, making the company important for systemic stability while fueling fears of contagion as he shows signs of financial stress.
A liquidation of Country Garden would worsen the property crisis, strain its onshore lenders and could delay the prospect of a recovery not just in the property market, but in China’s entire economy.
WHERE ARE WE IN THE COUNTRY GARDEN DEBT CRISIS? Country Garden in October defaulted on a $15 million bond and a group of so-called ad hoc bondholders has been formed for negotiations to prepare a roadmap for the repayment of its $11 billion offshore debt believed to be in default .
The developer last month said it had appointed KPMG Advisory (China) Ltd as lead financial advisor for the offshore debt restructuring, replacing Houlihan Lokey (NYSE:) chosen last year.
HOW BAD IS COUNTRY GARDEN’S FINANCIAL SITUATION?
At the end of June last year, Country Garden’s total liabilities were about $194 billion, unchanged from the end of 2022.
It faces 108.7 billion yuan ($14.9 billion) of debt due within 12 months, while its liquidity levels are around 101.1 billion yuan.
The company’s liquidity strains became public last August after the company missed two dollar coupon payments.
Country Garden President Yang Huiyan said last month that the market had not recovered as expected in 2023 and was still in the process of correcting.
BEIJING BAIL COUNTRY GARDEN OUT AND WHAT IS THE OUTLOOK FOR THE DEVELOPER?
So far Beijing has not directly bailed out any private Chinese developers, although some of them have come to the brink of collapse since the real estate crisis hit the economy in 2021, after a regulatory crackdown on debt accumulation by of developers.
For now, Beijing is rushing to introduce a series of measures, including offering financial support for select real estate projects, mortgage rate cuts and easing restrictions on home purchases, to revive the property market and support the shaky economy.
Country Garden said on Wednesday that 135 of its projects have been listed by Chinese local governments as eligible to receive financial support.
The country’s central bank last week announced its biggest-ever reduction in its benchmark mortgage rate, although analysts believe its impact on house prices will be limited as existing mortgage holders will not benefit until next year.
Prices of new homes in China slowed their monthly decline in January, with larger cities seeing some stabilization, but the nationwide downward trend continued despite Beijing’s efforts to revive demand.