Country Garden Defaults on Offshore Debt Amid Real Estate Woes
Payment Deadline Passes Without Word of Payment
A Country Garden $15 million coupon payment deadline has expired without any indication of payment, sparking speculation that China’s largest private property developer has defaulted on its offshore debt. This development comes as the nation’s real estate troubles continue to deepen.
Default Triggers Cross Defaults in Other Bonds
If non-payment occurs, it would trigger cross defaults in other Country Garden bonds, as stipulated in bond contracts. With nearly $11 billion of offshore bonds, a default by Country Garden could lead to one of the largest corporate debt restructurings in China’s history.
Bondholders Await Payment
One bondholder of the relevant tranche revealed that they had not received the coupon payment as the 30-day grace period came to an end. Cedric Rimaud, an analyst at GimmeCredit, emphasized that failure to pay within this grace period would constitute a default.
Real Estate Sector Struggles Amid Liquidity Problems
China’s real estate sector has been grappling with liquidity problems since 2021, when the government implemented measures to address the sector’s high debt levels. Numerous Chinese property developers have already defaulted, and Country Garden’s potential default further exacerbates the situation. The real estate industry accounts for a significant portion of China’s economic activity, and its ongoing challenges have had a ripple effect on the global financial markets.
Country Garden’s Financial Situation
Country Garden’s shares have experienced a significant decline of approximately 70% this year. However, they saw a slight recovery on Wednesday, rising by 2.7%. The value of its dollar bonds has plummeted from 70 cents at the beginning of the year to a mere 6 cents currently, according to LSEG data. Bondholders anticipate that the company’s debt will undergo restructuring.
Concerns and Expectations
Robert Ciemniak, co-founder of Real Estate Foresight, noted that the pricing of Country Garden’s offshore US dollar bonds reflects the prevailing expectations surrounding the company. While investors are prepared for losses, they hope that the restructuring process will be efficient and less painful compared to other companies, such as Evergrande.
Impact on Onshore Debt and New Capital
Country Garden is in a relatively better position concerning its onshore debt. It has obtained three-year payment extensions for eight bonds worth 10.8 billion yuan ($1.5 billion), providing some breathing room. However, private developers in China continue to struggle to secure new capital, despite recent support measures implemented by the government to revive the property market.
Outlook for China’s Property Market
China’s property market outlook remains bleak, which may further impact the terms that offshore creditors will have to accept during debt restructuring. Recent data reveals a 9.1% decline in property investment for the first nine months of the year, with sales by floor area dropping by 7.5%. The release of nationwide prices for new homes in September is anticipated to shed further light on the state of the market.
Defaults and Challenges Faced by Private Developers
Since 2021, developers representing 40% of Chinese home sales have defaulted on their debt obligations, with most of these companies being privately-run. These defaults amount to approximately $110 billion worth of high-yield offshore bonds. Hong Kong’s Mainland Properties Index has also experienced a significant decline of 40% so far this year.
Country Garden’s default on its offshore debt serves as yet another signal of the deepening crisis in China’s real estate sector. As the industry struggles with liquidity problems and high debt levels, the repercussions extend beyond the borders of China, impacting global financial markets. While the company seeks a holistic solution to its difficulties, investors brace themselves for the potential impact of the debt restructuring process.
