Country Garden Holdings Co., once China's biggest real estate developer, is facing a precarious financial situation that has raised concerns about its ability to repay its dollar bonds.[0] The company recently scrapped a share placement, leading to worries about its liquidity. While ratings agency Moody's Investors Service has stated that Country Garden has enough money to repay its bonds, the possibility of a default is becoming more likely.
Country Garden Holdings, one of China's largest private-sector property developers, has failed to make coupon payments on its debt, raising fears of an imminent default.[1] The company owes $10.5 million in interest on a dollar bond maturing in 2026 and $12 million on a note due in 2030. If the payments are not made within a 30-day grace period, it would be the company's first public default.[2]
This situation is particularly alarming because Country Garden had previously benefited from government measures to support the property market.[3] It was even designated as a model developer by Chinese authorities, which made it more appealing to lenders.[4] However, recent events have pushed Country Garden into a distressing situation that was unimaginable just a year ago when it was making significant sales.[4] Despite Beijing's promise of more support, there are concerns that the measures may not be sufficient.[4]
Country Garden Holdings, led by Yang Huiyan, one of China's wealthiest women, has left investors in the dark about the missed coupon payments.[5] The company's shares have plummeted, currently down 14.39%. The stock has fallen as much as 8.9% in Hong Kong, reaching its lowest level since November 2022. The company's market value has more than halved since the beginning of the year, and its bonds are being exchanged at significantly discounted prices, indicating doubts about full repayment.
The missed coupon payments may not amount to a large sum for Country Garden, but if they are not made, it would trigger a default, causing concern among lenders. The company's financial position has been strained due to declining sales of its apartment units. The profit warning issued in July further highlighted the challenges faced by the company, including a downward trend in real estate sales.[4]
Country Garden was once seen as one of the few Chinese property developers that had weathered the market downturn.[6] However, the industry has been hit by a combination of COVID restrictions and worsening liquidity conditions, leading to a significant sales slowdown.[6] While the Chinese government has pledged policies to support the property market, much of the focus has been on major cities, leaving companies like Country Garden, operating mainly in smaller cities, at a disadvantage.[4]
Investors' nervousness will only amplify Country Garden's financial pressures.[4] The company has performed worse than the broader market and developers focused on larger cities.[4] Sales under contract have dropped by nearly a third in the first half of the year.
A default by Country Garden Holdings could have more severe consequences than China Evergrande Group's default in late 2021.[7] Country Garden, previously China's largest private-sector developer, has more than 3,000 housing projects in smaller Chinese cities and employed around 70,000 people.[7] While it has managed to avoid the liquidity crunch faced by other developers, falling home sales and refinancing costs have put the company at risk of being caught up in the property debt crisis.[7]
The potential default of Country Garden appears to be liquidity-driven, in contrast to Evergrande's crisis, which was attributed to mismanagement.[7] Country Garden's heavier presence in China's real estate market makes its liquidity troubles more concerning. The company has a significant number of pending projects compared to Evergrande. A debt crisis at Country Garden could have far-reaching implications for China's housing market sentiment and weaken buyer confidence in other solvent private developers.[7]
Country Garden's potential default is another worrying sign for China's economic outlook as the country tries to revive its economy after three years of strict COVID prevention measures.[4] The decline in home sales, rising unemployment rates, and reduced consumer spending have created a challenging environment. In smaller cities, where Country Garden operates, there is an oversupply of housing and a declining population.[4]
As the debt crisis in China's property sector deepens, Country Garden Holdings is facing increasing financial difficulties. The chair of the company, Yang Huiyan, has seen her wealth decline significantly over the past two years, making her the billionaire with the largest wealth loss globally during that period.[8]
Amidst these concerns, shares of Country Garden Services Holdings have surged after the company announced plans to repurchase shares from the open market, indicating confidence in its growth prospects.[3] The buyback comes at a time when the Chinese property market faces economic slowdown and sluggish home sales. Country Garden Services has also reported positive net cash generated from operating activities, providing further optimism.
Overall, the potential default of Country Garden Holdings reflects the broader challenges faced by China's property industry. The sector, once a significant contributor to the country's GDP, has been marred by debts and defaults. The situation at Country Garden serves as a cautionary tale, highlighting the need for careful management and government support to prevent further crises in the market.
0. “Country Garden, Where a Bond Default Would Make Sense” Bloomberg, 6 Aug. 2023, https://www.bloomberg.com/opinion/articles/2023-08-06/china-property-country-garden-is-where-a-default-would-make-sense
1. “Chinese property crisis: another firm skips bond payments” Markets Insider, 8 Aug. 2023, https://markets.businessinsider.com/news/bonds/chinese-property-crisis-missed-bond-payments-economy-real-estate-2023-8
2. “Once Asia's Richest Woman, China Property Tycoon Loses More Wealth Than Any Billionaire” Bloomberg, 9 Aug. 2023, https://www.bloomberg.com/news/articles/2023-08-09/country-garden-chair-has-lost-more-wealth-than-any-billionaire
3. “Country Garden Services Plans Share Buyback, Stock Jumps” Clayton County Register, 2 Aug. 2023, https://www.claytoncountyregister.com/news2/country-garden-services-shares-jump-after-stock-buyback-plan/58846/
4. “Country Garden Is Latest Property Giant in China to Run Into Trouble” JARA News, 9 Aug. 2023, https://jara.news/country-garden-is-latest-property-giant-in-china-to-run-into-trouble/
5. “Country Garden Is in Danger of a Default Rivaling Evergrande” Bloomberg, 9 Aug. 2023, https://www.bloomberg.com/news/articles/2023-08-09/country-garden-shows-even-china-s-once-mighty-builders-at-brink
6. “Chinese property developer Country Garden slides after Moody's downgrade By Investing.com” Investing.com, 7 Aug. 2023, https://www.investing.com/news/stock-market-news/chinese-property-developer-country-garden-slides-after-moodys-downgrade-3146205
7. “Will China's Property Crisis Worsen?” Barchart, 9 Aug. 2023, https://www.barchart.com/story/news/19229627/will-chinas-property-crisis-worsen
8. “Asia's billionaires lose big in China property crisis” The Australian Financial Review, 10 Aug. 2023, https://www.afr.com/world/asia/asia-s-billionaires-lose-big-in-china-property-crisis-20230810-p5dvg2
