China's largest property developer, Country Garden, has recently reported a staggering half-year loss of nearly US$7 billion, sending shockwaves through the real estate sector. This record loss highlights the immense challenge facing the company as it grapples with a liquidity crisis that is affecting developers across China.
Country Garden's losses for the first half of the year amounted to Rmb48.9 billion (€6.1 billion), a significant blow to the company's financial stability. The sharp decline in sales, dropping by 35 percent to CNY140.8 billion (USD137.2 million) from January to July, further exacerbates the company's struggle to repay its debts.
The company's mounting debt, with total liabilities reaching nearly $200 billion, has put it under immense pressure to meet its financial obligations.[0] With approximately CNY31 billion ($4.3 billion) in bonds set to mature by the end of 2024, according to Moody's, Country Garden is actively negotiating with bond investors and banks to extend maturities and avoid default.[1]
However, the company's ability to repay its debts remains uncertain.[2] Country Garden has already missed interest payments on some dollar bonds and faces critical deadlines in the coming weeks.[2] Holders of a yuan bond are scheduled to vote on the company's plan to extend bond payment, and the developer must also pay a combined $22.5 million of dollar-note coupons in early September.[1]
To alleviate its financial strain, Country Garden is seeking a 40-day grace period for a maturing 3.9 billion yuan ($540.8 million) onshore bond.[3] The company hopes to secure creditor support for extending repayment by three years. However, concerns over the company's financial health have grown, especially after it missed coupon payments on international bonds and requested a grace period for a renminbi bond maturing next week.
The deteriorating financial performance of Country Garden has raised doubts about its ability to continue as a going concern.[1] The company has acknowledged the existence of “material uncertainties” that cast significant doubt on its future prospects.[1] This warning comes at a time when Guangzhou, a major Chinese city, has relaxed mortgage rules to support the struggling property sector.[0]
The crisis in China's property market extends beyond Country Garden.[4] The sector has been grappling with challenges for the past two years since the crisis at China Evergrande Group.[5] Evergrande's failure to meet bond interest payments triggered a wave of defaults across the industry, with Country Garden being the latest casualty. The company has until September 6, 2023, to pay its coupon liabilities, failing which it may default on its US dollar bonds.[6]
Country Garden's stock price has also suffered, dropping significantly in the past few months.[5] The company's shares fell below important support levels, indicating a bearish trend.[7] The overall outlook for the stock remains bearish as it remains below key moving averages.[5]
The company's struggle to maintain enough cash levels to meet its debt requirements and attract new customers has further exacerbated its challenges. With existing customers pausing their payments and the overall downturn in the Chinese property market, Country Garden faces an uphill battle for survival.
To address its liquidity pressures, Country Garden is considering adopting debt management measures to safeguard the interests of all stakeholders.[8] The company believes it may be able to meet its financial obligations in the next 12 months through anticipated cash inflows, cost controls, and ongoing talks with creditors.
The housing crisis in China has intensified, with the country having enough new apartments to meet seven years' worth of demand.[9] This overcapacity poses a significant risk to the country's economy.
As Country Garden grapples with its mounting debts and uncertain future, the company's struggles reflect the broader challenges facing the Chinese property sector. With Evergrande's bankruptcy protection filing and a wave of defaults sweeping the industry, the road to recovery for China's real estate market remains uncertain.
0. “Chinese homebuilder Country Garden warns it could default after posting $7 billion loss” Channel3000.com – WISC-TV3, 30 Aug. 2023, https://www.channel3000.com/news/national-and-world-news/chinese-homebuilder-country-garden-warns-it-could-default-after-posting-7-billion-loss/article_8a6039ac-d77e-5e2b-b429-717e0af27663.html
1. “Embattled Chinese real estate developer Country Garden warns of more bad news—a possible default—as China’s economy teeters on the brink” Fortune, 30 Aug. 2023, https://fortune.com/2023/08/30/country-garden-warning-default-china-economy
2. “Country Garden: Debt crisis-hit China property giant in record loss” BBC, 31 Aug. 2023, https://www.bbc.com/news/business-66667082
3. “Country Garden Seeks 40-Day Grace Period to Avert Default” Caixin Global, 30 Aug. 2023, https://www.caixinglobal.com/2023-08-30/country-garden-seeks-40-day-grace-period-to-avert-default-102098098.html
4. “Is China's economy on the brink of a Lehman moment?” Business Insider, 26 Aug. 2023, https://www.businessinsider.com/china-economy-beijing-lehman-moment-policy-deflation-economy-markets-property-2023-8
5. “Country Garden share price is extremely cheap: buy the dip?” Invezz, 22 Aug. 2023, https://invezz.com/news/2023/08/22/country-garden-share-price-is-extremely-cheap-buy-the-dip/
6. “Tick Tock: The Funds Still Exposed to Country Garden” Morningstar, 29 Aug. 2023, https://www.morningstar.co.uk/uk/news/238691/tick-tock-the-funds-still-exposed-to-country-garden.aspx
7. “Country Garden share price collapse to gain steam” Kalkine Media, 30 Aug. 2023, https://kalkinemedia.com/us/business-news/latest/country-garden-share-price-collapse-to-gain-steam
8. “Country Garden Holdings Expected to Post First-Half Net Loss — Earnings Preview” MarketWatch, 29 Aug. 2023, https://www.marketwatch.com/story/country-garden-holdings-expected-to-post-first-half-net-loss-earnings-preview-5c18e00b
9. “China has made its housing crisis worse: Report” Lokmat, 25 Aug. 2023, https://www.lokmattimes.com/international/china-has-made-its-housing-crisis-worse-report/
