Country Garden, the largest property developer in China, has successfully made a late interest payment, thereby avoiding an immediate default on its debts and ensuring its financial stability for the time being. This development comes after the company missed two interest payments totaling $22.5 million on U.S. dollar-denominated bonds last month. It had a 30-day grace period to rectify the situation and prevent default, which expired this week. However, Country Garden managed to make the payment within the grace period, according to a reliable source close to the company.
The delayed payments highlight the financial challenges faced by Country Garden, despite its status as China’s top-selling homebuilder for the past six years. The company has been making significant efforts to raise funds and address its liabilities, which amounted to approximately $187 billion as of June. After reporting a staggering loss of $7.1 billion for the first half of 2023, Country Garden even expressed concerns about potential bankruptcy due to “material uncertainties.”
To tackle its financial predicament, Country Garden recently struck a deal to sell a minority stake in a property development and agreed to issue new shares at a discounted rate to a creditor who is owed a substantial amount. The company has also reached an agreement with holders of its $537 million yuan-denominated bonds, originally due last week, to postpone repayment of the debt for a period of three years.
Nevertheless, the company faces the challenge of repaying nearly $15 billion in debt within the next year, including bonds, notes, and various borrowings. This amount exceeds its current cash reserves and equivalents of $13.9 billion. Once considered a role model in China’s property industry, Country Garden’s current cash crunch reflects the deepening real estate crisis in the country. Numerous homebuilders have already defaulted on their debts, unable to fulfill their financial obligations.
Country Garden had managed to avoid a severe liquidity crisis until recently when a slowdown in the Chinese economy led to a sharp and sudden decline in its property sales. Presales of unfinished apartments, a crucial indicator of future revenue, plummeted by over 50 percent in June and July—twice the rate of decline observed in the preceding five months.
Considering China Evergrande, one of Country Garden’s former rivals for the top spot among Chinese homebuilders, it defaulted on its debt in late 2021. The company then underwent a lengthy process of debt restructuring and negotiations with creditors, enduring nearly two years of financial turmoil before eventually declaring bankruptcy last month. Therefore, the resolution to Country Garden’s financial challenges may not be swift.
In a recent update, Country Garden revealed that it still owes approximately $200 million to a subsidiary of Kingboard Holdings Limited, a Hong Kong-based materials and chemicals manufacturer with a property division. The company has committed to paying the amount in installments, with the final payment due in December.
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