The deadline for Country Garden’s $15 million coupon payment has passed without any indication of payment, leading to speculation that China’s largest private property developer has defaulted on its offshore debt amid the country’s ongoing real estate troubles.
If Country Garden fails to make the payment, it would trigger cross defaults on other bonds, as is standard in bond contracts. With nearly $11 billion in offshore bonds, a default by Country Garden could result in one of China’s largest corporate debt restructurings.
A bondholder of the specific tranche in question, who wished to remain anonymous, confirmed that they had not received payment within the 30-day grace period.
Country Garden has acknowledged that it is unlikely to meet all of its offshore debt obligations and is seeking a comprehensive solution to its difficulties. However, the company’s statement did not directly address whether a default had occurred, and company representatives declined to comment.
Cedric Rimaud, an analyst at GimmeCredit, stated that if Country Garden fails to pay within the grace period, it would be considered a default.
Since 2021, numerous Chinese property developers have faced liquidity issues due to the government’s measures to address the sector’s high debt levels. This has resulted in defaults that have had a significant impact on China’s economy, which heavily relies on the real estate industry.
Country Garden’s missed payment follows an investigation into the chairman of China Evergrande, another troubled property developer that has also defaulted and played a central role in the sector’s debt crisis.
Fern Wang, a senior analyst at KT Capital Group, noted that Country Garden has been relatively more financially stable compared to Evergrande, as it has met the debt ratio requirements introduced in 2021.
Debt restructuring is expected for Country Garden, as sluggish demand for homes and declining property prices have affected the company’s financial health. The firm’s shares have plummeted by 70% this year, although they experienced a slight increase on the day of the missed payment.
Creditors anticipate that the debt will be restructured, and while they are prepared for losses, they hope the process will be more efficient and less painful than other companies like Evergrande.
Analyst Nicholas Chen from CreditSights predicts that any debt restructuring for Country Garden will likely involve a lengthy waiting period for creditors, citing the example of Sunac’s recent restructuring, which took at least 1.5 years.
Country Garden has obtained some relief with three-year payment extensions for its onshore debt, totaling 10.8 billion yuan ($1.5 billion).
Other developers in the sector continue to face challenges. Gemdale’s bonds have declined following the resignation of its chairman, raising concerns about the company’s financial stability. However, Gemdale has stated that the resignation was due to health reasons and will not significantly impact its operations.
Despite the Chinese government’s efforts to revive the property market with support measures, positive results have yet to materialize. Property investment in China has decreased by 9.1% in the first nine months of the year, and sales by floor area have dropped by 7.5%.
China’s bleak property market outlook is expected to worsen the terms that offshore creditors may have to accept during debt restructuring.
According to JPMorgan, developers responsible for 40% of Chinese home sales have defaulted on their debt obligations since 2021. These companies, mostly private, have issued approximately $110 billion worth of high-yield offshore bonds.
The outlook for Country Garden’s offshore creditors remains uncertain, and the situation highlights the ongoing challenges faced by China’s real estate sector.
($1=7.3110 Chinese yuan)
Reporting by Clare Jim and Xie Yu in Hong Kong; Writing by Scott Murdoch; Editing by Anne Marie Roantree and Edwina Gibbs
