In a stark reminder of the ongoing real estate crisis in China, Country Garden, once the nation's largest real estate developer, has issued its second warning in just over two months about a potential default on its staggering $190 billion debt. This development comes as the company grapples with a liquidity crisis, compounded by a persistently weak property market and challenging refinancing conditions.
Country Garden recently disclosed its inability to make a scheduled repayment of 470 million Hong Kong dollars (approximately $60 million) to overseas bondholders. This missed payment has raised concerns about the company's financial health and its ability to service its vast debt obligations. The company's sales of apartments plummeted by 81% in September compared to the same month the previous year. In a filing to the Hong Kong Stock Exchange, Country Garden stated that it anticipates challenges in meeting all of its offshore payment obligations within the stipulated timeframes or grace periods. The company further cautioned that such non-payment could prompt creditors to demand accelerated payment or even pursue enforcement actions.
The real estate giant's financial troubles underscore the broader challenges facing China's property market. The sector, which has been a significant driver of the country's economic growth, is currently mired in a downturn that threatens China's economic prospects. Analysts believe that the recovery from this crisis could be protracted, with housing demand diminishing due to an aging population.
Country Garden's financial woes are emblematic of the broader issues plaguing China's real estate sector. The company reported a record loss of $7 billion for the first half of 2023 and had previously indicated potential default risks if its financial performance continued to deteriorate. As of June's end, the company had approximately $15 billion in debt maturing by June 2024. The total liabilities amounted to around 1.36 trillion yuan (about $190 billion). In the event of a default, the company's debts would require restructuring, and creditors could potentially initiate a winding-up petition against the firm.
To address its current offshore debt risks and restore business operations, Country Garden has engaged advisers to assess its liquidity conditions and devise a comprehensive solution. The company has enlisted China International Capital Corporation Hong Kong Securities and Houlihan Lokey (China) as its financial advisers, with Sidley Austin serving as its legal counsel.
The company's struggles are not isolated. Other major Chinese developers, such as Evergrande, have also faced significant debt challenges, eroding consumer confidence in the sector. Evergrande, which defaulted in 2021, is currently navigating a complex restructuring process to manage its vast debts. The government's intervention to prevent a disorderly collapse of Evergrande and the subsequent appointment of a risk management committee to oversee its restructuring highlighted the gravity of the situation.
Country Garden's recent challenges have further emphasized the depth of the property market's downturn. In August, the company acknowledged facing its most significant difficulty since its inception in 1992, attributing it to declining sales and a challenging refinancing environment. This revelation sent shockwaves through the investment community, leading to a broad sell-off in China's property stocks.
As the company grapples with its financial challenges, it has expressed its commitment to engaging in constructive dialogue with all creditors to arrive at a feasible solution promptly. The ongoing challenges faced by Country Garden and other major developers underscore the need for concerted efforts to stabilize and rejuvenate China's property sector.
