Chinese real estate giant sinks deeper into debt trouble

Country Garden shares fell to a record low today, days after the company announced it was suspending trading of several bond lots.

Country Garden shares fell 16.3% today, dragging down the Hang Seng Mainland Properties Index, which tracks mainland Chinese real estate firms. The stock has lost nearly 50% this month. The price of Country Garden's offshore bonds also fell slightly.

Last week, the company announced that it would stop trading 11 domestic bond lots from August 14. The purpose is to prepare for a meeting with bondholders to reschedule debt repayment.

“The company will engage in dialogue with relevant parties and consider various debt management measures to ensure long-term development,” Country Garden said. A working group has also been set up to address the “current difficulties.” Country Garden is China’s largest private real estate developer.

A Country Garden project in Jiangsu (China) in 2021. Photo: AP

Investors say this is often a signal of a plan to extend payments. In September alone, Country Garden had to repay more than 9 billion yuan ($1.25 billion) of onshore bonds.

On August 11, Yicai (China) reported that the company was preparing to restructure its debt. Previously, they missed the deadline to pay interest on two bonds worth 22.5 million USD.

Country Garden’s troubles are adding to pressure on Chinese authorities as they try to revive the economy after Covid-19. The real estate sector, a pillar of the world’s second-largest economy, has seen sales decline, liquidity tighten and dozens of corporate defaults in recent years.

China's real estate market has been in crisis since mid-2021. The cause is believed to be Beijing's "three red lines" policy, which was launched to reduce systemic risk by limiting the ability of real estate companies to borrow new money. China Evergrande Group became the center of attention in 2021 when it missed multiple bond payments. They are still the world's most indebted real estate company, with more than $300 billion in debt.

Once considered a financially sound real estate company, Country Garden has not been able to avoid trouble as the Chinese real estate market has not recovered. "The problem in this industry has been simmering for a long time, causing investors to lose confidence and people to no longer want to buy real estate," concluded Dickie Wong - Director of Kingston Securities.

Ha Thu (according to CNN, Reuters)

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