HONG KONG/NEW YORK (Reuters) – Country Garden (2007.HK)’s agreement with creditors to extend 3.9 billion yuan ($537 million) of domestic debt payments boosted the developer’s shares on Monday and gave relief to crisis-hit China. The real estate sector is getting some much needed relief.
Country Garden shares jumped as much as 19% to their highest level since Aug. 10, and are on track for their biggest single-day percentage gain since November. Hong Kong’s Hang Seng Mainland Property Index (.HSMPI) rose more than 9%.
But while investors in the company may be breathing a sigh of relief, it remains to be seen whether a raft of government stimulus measures will soon help revive demand, ease cash pressure in the sector and lift the gloom hanging over the broader financial system.
Beijing on Monday added to its series of policy measures in recent months to revive the world’s second-largest economy, agreeing to establish a special office to promote the development and growth of the private economy.
The private sector is responsible for 80% of new jobs in urban areas, but has struggled to attract investment amid a fragile economic recovery during the first half of the year, with business owners also constrained by weak domestic demand.
Country Garden’s worsening financial woes have further highlighted the fragile state of the country’s real estate industry, which accounts for nearly a quarter of the economy and has been in severe debt distress since 2021.
Considered financially sound compared to its peers, China’s largest private developer had not defaulted on a debt obligation, both at home and abroad, until coupon payments on dollar bonds last month after a slowdown in demand for homes hurt its cash flows.
Since then, the Chinese authorities have taken a number of measures, the most important of which was reducing existing mortgage rates and preferential loans for purchasing first homes in major cities.
“We will see in the coming months whether these supply-side measures are able to revive home buying demand, which is critical to the fate of Chinese developers and their ability to handle their upcoming debt maturities,” said Tara Hariharan, managing director at Global Macroeconomics. Managing the NWI hedge fund in New York.
She noted that Country Garden and other developers face significant lead payments this year.
In the deal reached after a vote on its proposal late Friday, Country Garden is now allowed to repay the onshore debt in installments over three years, rather than fulfilling its obligations by September 2.
The corporate logo for Chinese developer Country Garden is photographed at the Shanghai Country Garden Center in Shanghai, China on August 9, 2023. REUTERS/Ali Song/File Photo Obtaining licensing rights
Restructuring conversations
Country Garden also remitted interest payments linked to a RM100 million ($21.5 million) bond that was due on Sept 2, a source familiar with the matter said, in another sign that the company is scrambling to meet repayment deadlines and avoid default.
The source requested that his name not be mentioned due to the sensitivity of the matter.
The developer also faces another looming debt repayment challenge — the expiration Tuesday of a grace period for missed coupon payments last month totaling $22.5 million on offshore dollar bonds.
Its ability to avoid an internal default through the extension deal has raised hopes that it will be able to make interest payments on those bonds, three of its external creditors said.
The bondholders declined to reveal their names because they were not authorized to speak to the media.
After the interest payments are made, creditors said they expected Country Garden to enter negotiations to fully restructure its external debt to avoid a “default”, similar to what it did with internal creditors.
Country Garden did not immediately respond to a request for comment.
While China’s real estate industry may have gained some relief, some market participants said they plan to stay away from the sector until there is a recovery in home sales.
“We sold all of our Chinese real estate stocks in April 2020 and have not bought back any of them since,” said Qi Wang, CEO of Hong Kong-based MegaTrust Investment. “I wouldn’t touch private developers with a ten-foot pole right now.”
($1 = 7.2606 Chinese yuan = 4.6540 ringgit)
(Reporting by Xie Yu in Hong Kong, Carolina Mandel in New York, and Joe Cash in Beijing – Preparing by Muhammad for the Arabic Bulletin) Writing by Sumit Chatterjee. Edited by Edwina Gibbs and Lincoln Feast
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