October 10, 2023, /Financial Times/ - Country Garden, China’s largest private developer, has warned of a potential default on its international debts in a significant blow to the country’s embattled property sector.
The company, which has about $200bn in liabilities and close to $10bn in dollar-denominated debt, said in a statement to the Hong Kong stock exchange that it had missed a due payment of HK$470mn ($60mn) on some of its debts and also expected it “will not be able to meet all of its offshore payment obligations” when they are due.
“Such non-payment may lead to relevant creditors of the group demanding acceleration of payment of the relevant indebtedness owed to them or pursuing enforcement action,” the company said on Tuesday.
The statement underscores a sudden deterioration in the financial health of Country Garden, which had so far this year withstood a sector-wide property cash crunch following the 2021 default of its peer Evergrande.
The potential default also adds to concerns over China’s property sector, which typically drives more than a quarter of the country’s economic activity but has for two years been plagued by construction delays after a wave of developer bond defaults, as well as by falling demand.
Country Garden said its sales for the first nine months were down 44 per cent on the same period in 2022 and fell in September for the sixth consecutive month.
“As there has not been any material, industry-wide improvement in property sales, the group faces significant uncertainty regarding asset disposals, and its liquidity position is expected to remain very tight in the short to medium term,” the group said.
Country Garden missed international bond payments in August, triggering a 30-day grace period, within which it narrowly avoided default last month. It said on Tuesday that it expected not to make payments “within relevant grace periods”, one of which expires next week.
The fate of Country Garden, which was previously seen as healthier than other private developers and eligible for government support programmes, will put pressure on Chinese policymakers who initially sought to curtail developer leverage in 2020.
Beijing has in recent months increased its support for the property sector and cut rates, while individual cities have also relaxed policies designed to constrain overheating prices. However, the industry’s outlook is clouded by uncertainty over unresolved defaults.
The restructuring plan of Evergrande, the world’s most indebted developer that first missed payments on its international debts two years ago, was derailed late in September after the company cited an unspecified “investigation” and pointed to regulatory constraints on issuing new notes.
Advisers to international bondholders holding about $6bn in the company hit out at the developer on Monday, saying that they had been “left in the dark” following the abrupt cancellation of the plan.
The bondholder group said the current “base case” was that the company would be liquidated at a winding-up hearing in Hong Kong at the end of the month.
Sunac, another former major private developer in China, received approval this month for its own $10bn restructuring plan from a Hong Kong court. Country Garden’s woes have also compounded fears that the crisis will spill over into other sectors.
Over the summer, Zhongrong, a giant in China’s $3tn shadow finance industry that lent money to developers, missed payments to customers.
In a separate statement to the Financial Times, Country Garden said it hoped to “comprehensively solve the company’s current overseas debt risks”. In September, it disclosed $7bn of losses in the first half of the year.
