By
Godfrey Benjamin
February 13th, 2024
Country Garden’s struggles come amidst broader turmoil within the Chinese property development sector.
China’s leading private property developer Country Garden is grappling with a severe default risk on its offshore debt as it races against time to meet a critical $15 million coupon payment due on Tuesday, signifying the end of a 30-day grace period. Failure to meet this payment will trigger cross defaults, a standard within the company’s bond contracts.
The company’s difficulties have intensified worries in the broader real estate industry, reflecting the struggles experienced by various other Chinese developers. With almost $11 billion in offshore bonds and an extra $6 billion in offshore loans, Country Garden’s possible default might pave the way for one of China’s most extensive corporate debt restructuring.
Country Garden Warns of Possible Default
Last week, the struggling real estate giant warned about its potential inability to fulfill all its offshore repayments, encompassing those issued in US dollar notes.
Formerly, Country Garden narrowly escaped default in early September by successfully settling $22.5 million in bond coupon payments before the expiration of the grace period. Its creditors agreed to prolong repayments on six onshore bonds for three years.
The company is now on the clock to meet up with another repayment today as the 30-day grace period ends. However, according to a Reuters report, one of the company’s bondholders said the firm has yet to pay as of noon on Tuesday.
Country Garden Reports Liabilities of $187 Billion
The potential default will not be the first time the company has missed repayment deadlines.
Over the past few weeks, the Chinese property developer has missed out on several repayments. However, the 30-day grace period for the payments is still running.
As of June 30, Country Garden reported total liabilities of $187 billion, solidifying its position as one of the most indebted builders worldwide.
Despite the potential default on its offshore debt, the company faces additional challenges as another grace period for a $40 million coupon on another dollar bond ends on October 27.
Last week, Kingboard Holdings (0148. HK), a printed circuit board maker, became one of the first publicly known companies to take legal action against Country Garden. Its unit owed HK$1.6 billion ($204 million) and issued a statutory demand seeking repayment.
In response to its mounting financial challenges, the company has appointed Houlihan Lokey, China International Capital Corporation (CICC), and law firm Sidley Austin to assess its capital structure and liquidity position to formulate a comprehensive solution.
Chinese Property Developer Faces Financial Crisis
Country Garden’s struggles come amidst broader turmoil within the Chinese property development sector. According to JPMorgan, 40% of Chinese home sales developers have defaulted on their debt obligations since 2021.
CreditSights’ data also revealed that Chinese developers have defaulted on over $114.6 billion of the $175 billion in outstanding dollar bonds since 2021.
Earlier today, another builder, Gemdale, saw its chairman resign, triggering a sharp decline in the company’s stocks and bonds.
Aside from Gemdale, Evergrande Group, another prominent real estate developer in China, faces a financial crisis after defaulting on debt repayment. Last month, the company officially sought bankruptcy protection in the United States.