Chinese developer Country Garden secures bond repayment delay amid liquidity crisis

Chinese developer, Country Garden, has successfully secured creditor approval to postpone a critical bond repayment deadline, narrowly dodging a potential default. This agreement provides temporary relief amidst a liquidity crisis that has significantly impacted the nation’s financial markets.

Country Garden gained enough support in a vote concluded yesterday to extend payments on the 3.9 billion yuan (18 billion baht) outstanding principal until 2026, as per filings made with the Shanghai Stock Exchange. The bond originally matured today, meaning the payment would have been due the subsequent business day, on Monday. The company also secured approval to add a 40-day grace period.

However, the challenges for Country Garden, previously the nation’s largest developer, are far from over as China’s broader property debt crisis enters its fourth year. The developer, which has approximately US$187 billion in total liabilities, faces more debt deadlines.

Country Garden must pay a combined US$22.5 million in two dollar note coupons within a grace period ending on September 5-6, or risk default. Last month, when the initial deadline for these payments was missed, markets were rattled, leading Chinese junk dollar bonds, majorly issued by builders, to drop to their lowest levels this year.

Headed by one of China’s wealthiest women, Yang Huiyan, Country Garden is a significant player in the Chinese economy, given its size. The company, with over 3,000 housing projects in smaller cities and approximately 70,000 employees, has previously managed to weather an industry cash crunch that resulted in record defaults since China Evergrande Group first missed bond payments in 2021.

However, an industry downturn now threatens this resilience. Any misstep by Country Garden, currently China’s sixth-largest builder by contracted sales, risks a more severe fallout than Evergrande, given it controls four times the number of property projects.

Country Garden recently reported an unprecedented net loss of 48.9 billion yuan for the first half of this year and warned of a possible default. In a statement released on Wednesday, the company said, “The shrinkage of the property sector, coupled with the not yet restored confidence of the capital market, exerted mounting pressure on the company’s business operation.”

China’s economic growth has, in part, been driven by property and construction, which contribute to over 20% of the gross domestic product. However, to curb risky debt-fuelled growth and housing speculation, authorities have intervened in recent years, leading to a cash crunch in the industry. Officials are currently attempting to stimulate demand for the property market to assist developers in recovery. Recently, authorities announced new stimulus for the struggling sector, including reduced minimum down payments for homebuyers, reports Bangkok Post.

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