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Chinese property development giant Country Garden is on the verge of default

The company logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai, on August 9, 2023.
The company logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai, on August 9, 2023. Copyright ALY SONG/REUTERS
Copyright ALY SONG/REUTERS
By Verónica Romano with AP, AFP, Reuters
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Country Garden, one of China’s largest property groups, warned on Tuesday that it would “not be able to meet all of its offshore payment obligations."

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Over-indebted Country Garden announced on Tuesday that it wouldn’t be able to repay all of its loans “when due or within the relevant grace periods”, potentially joining the growing list of Chinese developers that have defaulted.

The real estate giant, which has long been considered financially solid, has recently been caught up by the property crisis in China.

Country Garden was already formally at risk of defaulting last month, but it finally repaid €21 million in interest on loans before the end of the 30-day grace period.

Negotiations with creditors followed, and several repayments were rescheduled. However, the clock is ticking.

The group faces a big test next Tuesday when its entire offshore debt could be deemed to be in default if it fails to pay a $15 million (€14 million) September bond interest payment.

The company also admitted to not having made the payment of a HK$470 million (€56.7 million) loan. It still has a grace period to avoid a potential default, though.

In a filing to the Hong Kong stock exchange, Country Garden said that its sales and financing were facing "significant challenges". In fact, the giant's sales fell by almost 44% in January-September, compared to the same period last year.

The developer's shares sank 10.7% on Tuesday, having lost more than 70% of their value since the start of the year.

Furthermore, Country Garden said “its liquidity position is expected to remain very tight in the short- to medium-term,” since there has not been an industry-wide improvement in property sales.

A construction site of residential buildings by Chinese developer Country Garden is pictured in Tianjin, in China, on August 18, 2023.
A construction site of residential buildings by Chinese developer Country Garden is pictured in Tianjin, in China, on August 18, 2023.TINGSHU WANG/REUTERS

As of June, the property firm had more than €169.8 billion in liabilities and only €18.6 billion in cash, mainly intended to complete homes that owners had already paid for before they were built.

The developer assured it would make "its best effort to ensure the delivery of properties, which is the group's most critical corporate responsibility and is the key pillar to safeguard the property market."

What is happening in the Chinese property sector?

Country Garden's warning is in line with the unprecedented liquidity squeeze in China's property sector, which accounts for around a quarter of the country's economy.

From 2020 onwards, Beijing gradually tightened the conditions for credit access to curb a debt-fuelled construction boom. Financing sources for already indebted groups dried up and a wave of defaults followed.

As the second largest real estate developer in China, Evergrande’s default in 2021 stood out, undermining the confidence of potential buyers and having repercussions for the sector as a whole, against a backdrop of economic slowdown.

As a result, the Chinese government has rolled out a raft of measures in recent months to help renew homebuyers' confidence, such as reducing deposit requirements and cutting existing mortgage rates.

However, developers’ growing debt woes prevented the goal from being achieved.

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