After Country Garden missed bond coupon payments worth US$22.5 million last week, raising the risk of default if it cannot make the repayment within a 30-day grace-period, the once largest Chinese developer said it is facing the “biggest challenges since establishment” in a statement on Friday night.
Country Garden plunged more than 18 per cent to HK$0.80 on Monday in Hong Kong. A gauge tracking mainland developers listed in Hong Kong declined as much as 4.8 per cent before closing down 3.7 per cent, extending a 10 per cent loss last week.
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Country Garden may have absorbed the experiences of its peers, and is therefore no longer considering repaying one or two debts to survive its liquidity problems, said CGS-CIMB’s Cheng. Instead, the suspension may offer a window for the company to propose a comprehensive and long-term plan before opening debt-extension discussions with its onshore creditors, he said.
Country Garden had 1.4 trillion yuan of liabilities as of December 2022, and expects to have a net loss ranging between 45 billion yuan and 55 billion yuan for the first half of 2023, a recent filing with the Hong Kong stock exchange showed.
It still faces about 35 billion yuan worth of bond maturities through January, according to data compiled by JPMorgan.
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Additionally, the credit distress from Country Garden is likely to spill over to the country’s property and financial markets, Moody’s analysts led by Kaven Tsang said in a report on Friday.
“While Country Garden’s weakness in sales likely reflects the difficult operating conditions in China’s lower-tier cities, the weakening of national sales over the past two to three months could indicate a lengthy recovery process for the sector amid lingering concerns over soft economic prospects, high unemployment and developers’ incompletion risk,” the report said.
These developments would likely drive potential homebuyers away from privately owned developers to state-owned developers in the near term, and could also “weaken effects of any potential supportive measures by the government to stabilise property sales”, it added.
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The rating agency downgraded Country Garden to Caa1 from B1 on Thursday, citing sizeable refinancing needs and still-constrained access to funding as reasons.
The liquidity crunch in the property sector continues to weigh on the wider market. Sino-Ocean suspended trading of 6 per cent guaranteed notes due in 2024 on the Hong Kong stock exchange due to non-payment of US$20.94 million in interest. The interest covers the period from and including January 30 to but excluding July 30 by August 13, according to a filing on Monday morning.
Sino-Ocean also said it is conducting a consent solicitation in relation to the notes and has received sufficient consent instructions to pass an extraordinary resolution at a meeting to be held on August 17.
Shares of Sino-Ocean fell 5.1 per cent to HK$0.37 on Monday.
Additional reporting by Jiaxing Li
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