China’s largest private property developer, Country Garden, has failed to pay a $15 million coupon on its offshore debt, sparking fears of a massive corporate debt restructuring. The company has nearly $11 billion of offshore bonds and a default would trigger cross defaults in other bonds.
Country Garden said on Wednesday that it expects to be unable to meet all of its offshore debt obligations and hopes to seek a “holistic” solution to its difficulties. The company did not confirm or deny whether it had defaulted on the coupon payment, which had a 30-day grace period that ended on Tuesday.
One bondholder told Reuters that he had not received the payment, while another source said the payment had not been made by 1300 GMT. If confirmed, this would be one of the biggest defaults by a Chinese property developer, which has been struggling with liquidity problems since 2021 when the government introduced measures to curb the sector’s high debt levels.
The property industry accounts for a quarter of China’s economic activity and its prolonged woes have weighed on the world’s second-largest economy and rattled global financial markets. The most prominent case is China Evergrande, which has also defaulted on its debt and is under investigation by the authorities.
Country Garden was once considered one of the healthier developers in China, as it had met all three of the debt ratio requirements imposed by the government in 2021. However, sluggish demand for homes and weakening property prices amid a broader economic downturn have eroded its financial position.
The company’s shares have lost 70% of their value this year, while its dollar bonds are trading at around 6 cents on the dollar, according to LSEG data. Bondholders say they expect the debt to be restructured, but they may have to wait for a long time and accept significant losses.
CreditSights analyst Nicholas Chen said any debt restructuring would likely involve a long wait for Country Garden creditors, noting that peer Sunac’s recently approved restructuring took at least 1.5 years. Country Garden is in better shape with its onshore debt, having secured three-year payment extensions for eight bonds worth 10.8 billion yuan ($1.5 billion).
The sector’s troubles continue to affect other developers. Gemdale has seen its bonds slide since Tuesday after the resignation of its chairman sparked fears that it too may be in financial trouble. Gemdale has said the resignation was due to health reasons and would not have a big impact on its operations.
China has rolled out a series of support measures in recent months to revive the property market, but positive results have yet to be seen. Data on Wednesday showed property investment in China slid 9.1% for the first nine months of the year, while sales by floor area dropped 7.5%. Nationwide prices of new homes for September will be released on Thursday. August data showed a 0.3% drop month on month, the fastest pace in 10 months.
China’s bleak property market outlook is likely to worsen the terms that offshore creditors may have to accept as debt is restructured. Developers accounting for 40% of Chinese home sales have defaulted on their debt obligations since 2021, according to JPMorgan. Those companies, mostly private, have issued around $110 billion worth of high-yield offshore bonds.
Despite the challenges facing the sector, some analysts believe that China will not let its property market collapse and will take measures to prevent systemic risks. They also point out that some developers are still profitable and have strong cash flows.
Source: [Reuters]
