Country Garden Holdings, a prominent Chinese property developer, is facing a significant challenge as it received a liquidation petition from Ever Credit Limited, a creditor, over an unpaid loan totaling 1.6 billion Hong Kong dollars ($204.4 million). The petition, filed on February 27 and announced in a regulatory disclosure, marks a critical juncture for the developer and adds to the growing concerns surrounding China's property sector, which has been under severe stress due to high levels of debt and reduced demand.
Shares of Country Garden plummeted over 12% following the announcement, underscoring investor apprehensions about the stability of the real estate market in China, which has long been a cornerstone of the nation's economic growth. The property sector's rapid expansion, fueled by substantial borrowing over the past decades, has led to significant financial strain on developers like Country Garden and the now-infamous China Evergrande, resulting in defaults and complex debt restructuring efforts.
Country Garden's management has expressed its intent to "vigorously" contest the winding-up petition and is planning to take legal actions to defend the company. The court hearing is scheduled for May 17, where the developer will present its case. In the meantime, Country Garden aims to engage proactively with its offshore creditors, working on a restructuring plan to navigate through its financial difficulties. The company remains hopeful that this petition will not materially impact its ongoing restructuring process.
This development comes on the heels of a landmark ruling last month when a Hong Kong court ordered the liquidation of China Evergrande, once the country's second-largest homebuilder. The ruling against Evergrande, which had been entangled in protracted debt restructuring talks with overseas creditors, reignited concerns about the fragility of China's real estate sector. However, the fears of a wider spillover effect have somewhat diminished as Evergrande's troubles seem to have been contained for the time being.
The real estate downturn in China, exacerbated by government crackdowns on developer borrowing starting in 2021, has posed significant challenges to the country's economic stability. The sector's decline has prompted interventions from Chinese authorities, including a recent record cut in the key mortgage reference rate by the central bank, aimed at revitalizing the property market.
As Country Garden and other major developers grapple with liquidity crises and efforts to restructure their debts, the implications for investors, thousands of workers, and homebuyers awaiting the completion of their properties remain a pressing concern. The situation underscores the broader issues facing China's once-booming property market, highlighting the need for sustainable growth strategies that do not overly rely on debt.
