Country Garden, Chinese real estate giant, to miss loan payments

Troubled property developer Country Garden on Tuesday said it is unable to repay loans and is likely to default on upcoming foreign debt payments as a result of a decline in sales due to China’s growing property crisis.

The announcement, made on the Hong Kong Stock Exchange, is effectively a statement by Country Garden, once China’s largest homebuilder, that it is likely to default with liabilities of about $187 billion. Country Gardens is one of the biggest causes of China’s real estate market explosion, which has sent Evergrande, another giant property developer, into bankruptcy.

Country Garden has been struggling to stem the decline over the past few months, selling assets to raise cash and negotiating with creditors to restructure liabilities or delay payments. But the company’s continued struggle to sell new apartments has reduced the cash flow needed to stay on top of loan payments.

Country Garden said pre-sales of unfinished apartments, an important indicator of future revenue, fell for the sixth consecutive month in September to 6.17 billion yuan, or $862 million. This was 81 percent less than the same month a year ago. In the first nine months of 2023, pre-sales were down 44 percent from the same period a year earlier.

“The current market conditions have made it difficult for the Group to secure sufficient cash to enhance its liquidity position in a short period of time. As a result, the group’s cash position remains under considerable pressure,” the company said in the statement.

It said there had been “no significant, industry-wide improvement in asset sales” and that Country Garden faced “significant uncertainty” in trying to offload assets to improve its liquidity.

For the past two years, while other property developers failed to repay loans after years of excessive borrowing and aggressive construction, Country Garden seemed to be a rare example of an exceptional, financially responsible Chinese real estate firm. But as the economy struggled to rebound after Beijing lifted its restrictive Covid policies and the country’s property market continued to slump, the country garden’s financial pressures worsened.

Country Garden has been particularly hurt by its underperformance in China’s less developed third- and fourth-tier cities, where the real estate slowdown is more pronounced.

Last month, when Country Garden announced that it had managed to make closely watched interest payments to avoid default, the company said it still had to pay it in the form of bonds, notes and bank notes due within the next 12 months. A debt of $15 billion needs to be repaid. Other borrowings.

On Tuesday, the company said it expected to default on foreign debt payments despite an agreement by local creditors to delay the maturity of nine corporate bonds totaling about $2 billion.

Jeff Zhang, an analyst covering Chinese property companies for Morningstar, said the announcement was not a surprise given the lack of funding options available to Country Garden and the sharp decline in its sales.

“We do not expect there to be any substantive improvement in firm liquidity in the near term as home buyers and financial institutions may remain on the sidelines,” Mr Zhang said.

Country Garden said it has not repaid the $60 million loan denominated in Hong Kong dollars and that it expects not to repay all of its foreign debt obligations when due, or even within the grace period. Will get.

The company said “its highest operational priority” is to ensure delivery of unfinished apartments, which is a priority for the Chinese government. The company said it had planned a total of 420,000 units through 2023 by the end of September.

It said it had appointed China International Capital and Houlihan Lokey, an investment bank specializing in debt restructuring, as joint financial advisers.

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