The Shanghai Country Garden Center in Shanghai, China presents the iconic logo of Country Garden, a prominent Chinese developer. However, the company has recently faced challenges, causing its shares to hit a record low. There are concerns that Country Garden is considering a debt restructuring, which has further raised apprehensions about the outlook for the property sector in China, particularly in the absence of significant support from Beijing.
According to Chinese news outlet Yicai, an unnamed financial source has indicated that Country Garden is expected to initiate a restructuring process soon. The company would join a growing list of developers, including China Evergrande Group and Sunac China Holdings, that have already proposed debt restructuring terms.
Country Garden’s bonds and shares plummeted after the developer issued a warning on Thursday. The company stated that it could potentially report a loss of up to $7.6 billion in the first half of the year, expressing regret to investors for misjudging market conditions. Once considered financially stable, Country Garden’s struggles could have a detrimental effect on homebuyers and financial institutions. This adds to the challenges faced by a sector that has experienced declining sales, limited liquidity, and several developer defaults since late 2021.
Despite the Chinese politburo’s commitment in July to adjust property policies promptly, no significant actions have been taken by regulators thus far to support the market. China’s securities regulator recently held a meeting with developers to discuss their sales and debt situations, inquiring about their financing needs. Although speculation suggests that Country Garden’s missed coupon payments this week could prompt regulators to introduce stronger aid measures, analysts remain skeptical that these steps would yield immediate results in reviving the sector.
With a grace period of 30 days for missed payments, Country Garden faces near-term repayment obligations. In September alone, the company may need to repay over 9 billion yuan ($1.25 billion) worth of onshore bonds. As a result, it’s reported that the company might request an extension from creditors to secure liquidity for ongoing home construction.
Country Garden has sought the expertise of China International Capital Corporation (CICC) as a financial adviser, as reported by Yicai and Caixin. Moody’s, which downgraded Country Garden’s corporate family rating, expects the company’s credit distress to have a spill-over effect on the country’s property and financial markets, further hampering the recovery of China’s property sector.
In light of its projected net loss for the first half, Country Garden highlighted a drop in gross margin and an increase in inventory impairments as the primary reasons. The company expressed remorse for its failure to adequately anticipate the severity of China’s property downturn and take preemptive measures. On social media, Country Garden issued an apology letter and pledged to prioritize completing home projects, addressing liquidity pressure, and ensuring smooth operations.
Meanwhile, China Aoyuan Group, another developer, announced that a majority of its offshore note holders had approved its restructuring terms, surpassing the required threshold. Additionally, Fantasia Holdings, the first developer to announce a debt restructuring during this crisis, resumed trading after a 16-month hiatus, experiencing a significant drop in shares following the release of overdue financial results.
As the situation unfolds, ongoing developments in Country Garden’s debt restructuring and the wider property sector are poised to impact market sentiment and potentially delay the recovery of China’s property market.
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