China’s Country Garden warns investors against failing to pay offshore debt obligations when due or within the grace periods, as the country’s biggest private real-estate developer is grappling with the debt restructuring.
The company on Tuesday filed its statement to the Hong Kong Stock Exchange saying that, “the non-payment may lead to relevant creditors of the Group demanding faster payment of the relevant indebtedness owed to them or can go for enforced actions.”
The largest property developer in China, is currently facing too much uncertainty to dispose of its assets and its cash position remains under constant pressure. The Country Garden has $10.96 billion of offshore bonds and 42.4 billion yuan ($5.81 billion) worth of debt obligations that it warns against failing to pay.
As of Tuesday, the company has already failed to make a debt obligation of 470 million Hong Kong Dollars ($60 million).
ALSO READ: China Evergrande Shares Plunged 25% following the arrest of wealth management staff
Historical debt situation
Private real-estate developers, accounting for more than 40% of Chinese home sales, have defaulted on multiple debt obligations since a liquidity crunch was seen in the sector in 2021, leaving thousands of homes unfinished.
The problems have deepened since then, as the confidence of investors and homeowners have dried up on the Chinese property sector, further shrinking the liquidity. Country Garden, just narrowly avoided a default in early September on a debt obligation of $22.5 million, owing to an extension in the payment duration.
The Group’s sales have recorded a contraction for the sixth consecutive month in September, selling just 6.17 billion yuan’s worth of property, nearly 80.7% less than the previous year.
DONT FORGET: China’s exports fall in August amid weak global demand
Country Garden In the coming days
In the coming days, the company is expecting a period of turbulence and uncertainty in its liquidity position and might go for asset sales in the short and medium term amid a lack of material supplies.
For this purpose, COuntry Garden has already appointed China International Capital corporation (CICC) and law firm Sidley Austin to advise on the firm’s capital structure and liquidity.
Morningstar analyst Jeff Zhang said that the advisors are of the view that, “whether the company will default hinges on the outcome of overseas debt restructuring and the next two weeks will be crucial.”
He further said that, “we do not expect Country Garden’s liquidity to improve as homebuyers and financial institutions may continue to stay on the sidelines.”
The developer has been working in recent days to announce a offshore debt restructuring plan, as per the media reports. This news comes as Country Garden is facing another big test next week where its entire offshore debt could be deemed as default upon failing to pay $15 million by next Tuesday.
MUST READ: Country Garden clears debt payments Seen as a relief for China property sector
Onshore debt Situation
Country Garden in a statement issued on Tuesday said it has received approval from the onshore bondholders for the extension of nine bonds with a principal value of $2.02 billion, initially granted to provide the fiscal and financial space for the company.
CreditSights co-head of Asia Pacific research said that, “the company’s previous model was not sustainable, they are now addressing it, and trying to scale down their debt burden to make their business size appropriate.”
She said that the developer should reach for a debt restructuring plan that should include, reducing coupon rates, extending maturity dates, and accelerating asset sales. Adding to that, the Chinese government has recently introduced a range of initiatives from reducing deposit requirements to cutting mortgage rates in a few regions to renew buyer confidence.
The company’s share increased by 3% during the initial trading session, having lost almost 70% of the value since January.
($1 = 7.2813 Chinese yuan renminbi)
($1 = 7.8284 Hong Kong dollars)
