Country Garden says it can’t meet all offshore loan payments, setting the stage for reform

• The company says it faces a lot of uncertainty regarding asset disposal
• Next offshore loan test is $15 million coupon payment on October 17
• Onshore bondholders agree to restructure $2 billion of debt

HONG KONG, Oct 10 (Reuters) – Country Garden (2007.HK) warned on Tuesday about its inability to meet offshore debt obligations, joining a growing list of Chinese developers potentially defaulting and the country The stage is being set for one of the largest loans of. Reorganization.

Companies that account for 40% of Chinese home sales – mostly private property developers – have been defaulting on loan obligations since a liquidity crisis hit the sector in 2021, leaving many homes uncompleted.

Country Garden, China’s biggest private property developer, has not defaulted so far, but has missed coupon payments on some dollar bonds since last month and faces the end of a 30-day grace period to make payments next week. Used to be.

In a filing with the Hong Kong Stock Exchange on Tuesday, Country Garden said its sales and financing were facing “significant challenges”, and its available funds continued to be depleted.

The company said it “will not be able to meet all of its offshore payment obligations when due or within the relevant grace period”, adding that non-payment could lead to demands from creditors to accelerate payments or take enforcement action.

Country Garden’s warning underlines how an unprecedented liquidity crunch in the Chinese property sector, which accounts for about a quarter of the economy, and weak sales are clouding prospects for developers.

Beijing has taken a number of measures in recent months to help renew homebuyer confidence, including lowering deposit requirements and cutting existing mortgage rates, but developers’ growing debt crisis has hampered efforts to achieve that goal. There was no possibility.

Country Garden, which has $10.96 billion of offshore bonds and 42.7 billion yuan ($5.86 billion) of offshore loans, said it faces “significant” uncertainty regarding the disposal of assets and its cash position is under pressure. Made in.

The developer said it has appointed Houlihan Lokey, China International Capital Corporation (CICC) and law firm Sidley Austin as advisors to examine its capital structure and liquidity position and formulate a holistic solution.

The company said it would work with advisors to develop the most practical and optimal solution for all stakeholders, and called on creditors to exercise patience.

Morningstar analyst Jeff Zhang said mandatory advisories showed that “whether the company will default depends on the outcome of the overseas debt restructuring and the next two weeks will be critical.”

“We do not expect Country Garden liquidity to improve materially as home buyers and financial institutions may remain on the sidelines.”

a big test is coming

The latest slowdown in China’s property sector began in 2021 following a government-led crackdown on a debt-fueled building boom. This has deepened as economic growth has faltered and confidence in the housing and capital markets has waned, further reducing developers’ liquidity.

Country Garden was due to pay $66.8 million in coupons on $2024 and 2026 bonds on Monday, although there is a 30-day grace period for payment. The developer has not disclosed whether they were paid or not.

The developer did not make principal payments of HK$470 million ($60.04 million) on some loans, it said in Tuesday’s filing, without giving further details.

Country Garden faces a big test next week when its entire offshore loan could be considered in default if it fails to pay the September coupon of $15 million by October 17, the end of a 30-day grace period.

However, it has received approval from onshore bondholders to issue nine series of bonds with an outstanding principal value of 14.7 billion yuan ($2.02 billion), the filing said.

It said the expansion has provided it “time and space to focus on the recovery of its business operations.”

liquidation petitions

Country Garden shares fell more than 10% by midday on Tuesday, reducing their value by almost 70% since the start of the year.

“The company’s previous model was not sustainable, they are now addressing that, trying to reduce their debt burden and appropriate the size of their business,” said Sandra Chow, co-head of Asia Pacific research at CreditSight. Are.”

“Overall there is a small property market and it makes sense to optimize it,” he said, adding that the restructuring would look at increasing loan maturity repayments, reducing bond coupon rates and accelerating property sales.

Country Garden said it would “do its best to ensure the delivery of assets, which is the group’s most important corporate responsibility and a key pillar for the protection of the property market.”

Several defaulting developers are facing liquidation petitions, including China Evergrande Group (3333.HK), which is at the center of the debt crisis. So far, only a few couples have been ordered wound up by foreign courts.

Smaller peer Kaisa Group (1638.HK) said creditors would get less than 5% of their money back if it is forced into liquidation, lawyers for Broad Peak Investments, a creditor who filed the winding-up petition against the developer, said. Has done, told a Hong Kong court on Tuesday.

($1 = 7.8284 Hong Kong dollars)

Reporting by Scott Murdoch in Sydney and Zi Yu in Hong Kong; Additional reporting by Rishav Chatterjee in Bengaluru and Claire Jim in Hong Kong; Editing by Rashmi Aich, Lincoln Fest, Jamie Freed and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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Scott Murdoch has been a journalist for Thomson Reuters and News Corp in Australia for more than two decades. He has specialized in financial journalism for most of his career and has covered equity and debt capital markets in Asia and Australian M&A. He is based in Sydney.

Source: www.reuters.com