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Country Garden, the largest privately-owned property developer in China based on sales, has reported a staggering loss of Rmb48.9bn ($6.7bn) for the first half of this year, as it contends with the liquidity crisis currently affecting the country’s real estate sector.
This six-month result is the company’s highest-ever loss, surprising many who previously considered the company to be comparatively secure. It also highlights the bleak outlook for an industry that typically contributes over a quarter of China’s economic activity.
Country Garden’s troubles are part of a two-year liquidity crisis in the real estate sector, which started with the default of developer China Evergrande in 2021 and has since started to affect the Chinese investment industry.
As the crisis has persisted, Country Garden’s losses have increased from Rmb6.7bn in the second half of 2022. In contrast, the company recorded a profit of Rmb612mn in the first six months of last year.
The group, headquartered in Guangdong, stated that its revenues in the first half of this year rose by 39% to Rmb226bn.
However, it also conceded that it had “adjusted the sales volume and selling price” of some of its property projects to “ensure timely delivery of completed properties,” indicating that it had lowered prices to sell units.
Concerns about Country Garden’s financial situation grew when it missed coupon payments for international bonds. On Tuesday, the company requested a 40-day grace period from its Chinese creditors for a renminbi bond maturing the following week.
At the end of the first half of 2023, Country Garden reported liabilities of about Rmb1.36tn. The company stated that it would “consider implementing various debt management measures” to address what it described as “temporary liquidity pressure.”
Beijing initially cracked down on borrowing by Chinese developers during the early stages of the COVID-19 pandemic. However, as the country continues to struggle with the revival of its economy, the government has been compelled to relax its approach.
In response to mounting pressure, the cities of Guangzhou and Shenzhen recently eased mortgage lending conditions for first-home buyers. These restrictions were initially implemented to curb surging home prices but have now been adjusted due to the prolonged slowdown in the housing market.
While the government has refrained from bailouts, its response towards Country Garden is being closely monitored.
Data from Dealogic reveals that Chinese developers face a staggering $38bn in renminbi and dollar bond payments over the next four months.
“Developer defaults will certainly continue as almost all private developers face cash flow pressure that isn’t going away any time soon,” said Bruce Pang, Chief Economist for Greater China at JLL. “Any policy support that does come will take time to impact cash flow, home sales, and new construction starts.”
Country Garden had planned to raise $300mn through a share offering in late July, but the deal was abruptly canceled at the last minute.
On Wednesday, the developer also announced plans to issue HK$270mn (US$34mn) worth of new shares in Hong Kong at a 15% discount to the closing price on Tuesday. The funds raised will be used to repay existing loans.
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