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Country Garden, China’s largest private developer, has issued a warning concerning a potential default on its international debts, dealing a significant blow to the country’s embattled property sector.
The company, with approximately $200bn in liabilities and nearly $10bn in dollar-denominated debt, stated in a Hong Kong stock exchange announcement that it had missed a payment of HK$470mn ($60mn) on some of its debts. Furthermore, it anticipates that it will be unable to meet all of its offshore payment obligations when they become due.
In response to this news, the company stated, “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.”
This statement highlights the sudden decline in Country Garden’s financial health. Despite enduring a sector-wide property cash crunch following the default of its peer Evergrande earlier this year, Country Garden had managed to weather the storm until now.
This potential default adds to concerns about China’s property sector, which typically accounts for over a quarter of the country’s economic activity. However, the sector has been plagued by construction delays and falling demand for the past two years, partly due to a wave of developer bond defaults.
Country Garden revealed that its sales during the first nine months of the year were down 44% compared to the same period in 2022, and they fell in September for the sixth consecutive month.
The company previously missed international bond payments in August, triggering a 30-day grace period. It narrowly avoided defaulting last month. However, it stated on Tuesday that it expects to miss payments within the relevant grace periods, one of which expires next week.
The fate of Country Garden, which was once considered healthier than other private developers and eligible for government support programs, will place pressure on Chinese policymakers who initially aimed to limit developer leverage in 2020.
In recent months, Beijing has increased its support for the property sector by reducing interest rates, and individual cities have relaxed policies designed to control rising prices. However, unresolved defaults continue to cast a shadow over the industry’s outlook.
The restructuring plan of Evergrande, the world’s most indebted developer that first missed payments on its international debts two years ago, was derailed in late September. The company cited an unspecified “investigation” and pointed to regulatory constraints on issuing new notes.
Advisers to international bondholders, who hold approximately $6bn in the company, criticized Evergrande on Monday, stating that they had been “left in the dark” following the sudden cancellation of the plan.
The bondholder group’s current “base case” is that the company will be liquidated at a winding-up hearing in Hong Kong at the end of the month.
This news has also heightened fears that the crisis will spill over into other sectors. Sunac, another former major private developer in China, recently received approval for its own $10bn restructuring plan from a Hong Kong court.
Country Garden, in a separate statement to the Financial Times, expressed hope that it will “comprehensively solve the company’s current overseas debt risks.” In September, the company disclosed losses of $7bn in the first half of the year.
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