China’s Country Garden Fails to Meet $60 Million Payment Deadline, Admits Default Likely

Aldgra Fredly
By Aldgra Fredly
October 10, 2023China News

Debt-ridden Chinese property developer Country Garden Holdings said Tuesday that it had failed to make a principal payment of HK$470 million ($60 million) by the deadline.

The company did not elaborate on details about the payment but admitted that a future default is likely as it may “not be able to meet all of its offshore payment obligations when due or within the relevant grace periods, including but not limited to those under the U.S. dollar notes.”

“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 in a Hong Kong Stock Exchange filing (pdf).

Country Garden was due on Monday to pay $66.8 million in coupons on 2024 and 2026 dollar bonds, although the payments have a 30-day grace period.

In its filing, the Chinese real-estate giant said it faces “significant uncertainty” regarding its ability to secure sales of its properties and expects that its liquidity position will remain tight, citing the absence of “any material, industry-wide improvement in property sales.”

Country Garden said it had explored various options for cash generation, but the “prevailing market conditions” have made it difficult for the company to procure the sufficient cash needed to meet its looming debt deadlines.

“Since 2020, there has been a continuous net cash outflow in the Group’s financing activities,” the company stated.

“Currently the Group’s sales and financing are still facing significant challenges, and its available funds have continued to decrease,” it added, with the Chinese economy showing concerning signs of deep structural issues.

The company’s unaudited operating figures showed Country Garden’s sales contracted to RMB154.98 billion ($21.3 billion) from January to September, marking a decrease of 43.9 percent and 65.4 percent, respectively, compared with the same periods in 2022 and 2021.

Country Garden received “requisite consent” from relevant bondholders for the extension of maturity for nine series of onshore corporate bonds with an aggregate outstanding principal amount of approximately RMB14.7 billion ($2 billion), it said in the filing.

Country Garden has $10.96 billion offshore bonds and 42.4 billion yuan ($5.81 billion) worth of loans not denominated in yuan. If it defaults, these debts will need to be restructured, and the company and its assets will be open to liquidation by creditors.

The company said that it had hired advisors from China International Capital Corporation Hong Kong Securities Limited, Houlihan Lokey, and law firm Sidley Austin to evaluate its capital structure and liquidity position.

“The company and its advisors will ensure fair and equitable treatment amongst all creditors and actively communicate with creditors to explore potential options when appropriate,” it stated.

File Photo The Company Logo Of Chinese Developer Country Garden Is Pictured At The Shanghai Country Garden Center In Shanghai
The company logo of Chinese developer Country Garden at the Shanghai Country Garden Center in Shanghai on Aug. 9, 2023. (Aly Song/Reuters)

Country Garden was once known for its large-scale projects in smaller cities and rural areas, as well as its ambitious plans to build a forest city in Malaysia, which the company said has been “operating normally” despite its mounting debt crisis.

However, the company has been hit hard by Beijing’s tightening measures on China’s property sector that the central government said was to curb speculation and debt risks. The company has also faced increasing competition from other developers, such as Evergrande Group and Sunac China Holdings Ltd.

China’s property sector has been destablized by a debt crisis since 2021. Companies accounting for 40 percent of Chinese home sales—mostly private property developers—have defaulted on debt obligations, leaving many homes unfinished.

More than two years on, the crisis has deepened as confidence in both housing and capital markets dried up, further squeezing developers’ liquidity.

Evergrande, which is at the center of China’s debt crisis, said last month that its founder was being investigated over unspecified crimes. It has also said it was unable to issue new debt—a crucial step in a restructuring—due to an ongoing investigation of its main unit.

Indrajit Basu and Reuters contributed to this report.

From The Epoch Times

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