A construction site for residential buildings by Chinese developer Country Garden is pictured in Tianjin, China on August 18, 2023. REUTERS/Tingshu Wang/File Photo Obtaining licensing rights
HONG KONG/BEIJING (Reuters) – Country Garden Co made interest payments on a U.S. dollar bond hours before the grace period deadline, pulling it back from the brink of default for the second time in four days, a person close to the company said. Bringing relief to the real estate sector affected by the crisis.
China’s largest private property developer (2007.HK) failed to pay coupons on bonds totaling $22.5 million due on August 6, exacerbating concerns about its cash position and keeping markets on edge throughout the bonds’ 30-day grace periods.
Although the amount was relatively modest, a failure to pay would have undermined fragile hopes in financial markets that China’s steady political stimulus was beginning to stabilize the economy and the faltering real estate market.
Bondholders and lawyers said it would also have raised the possibility of another default on dollar bonds as well as calls from creditors to speed up payments, while raising concern about the risks of a fallout in the world’s second-largest economy.
Country Garden on Tuesday also offered to extend the repayment of eight local bonds worth 10.8 billion yuan ($1.48 billion) for three years, according to people familiar with the matter and documents seen by Reuters.
Those bonds, issued by Country Garden and its subsidiary, were scheduled to mature and be tendered in 2023 and 2024, documents sent to local bondholders showed.
Country Garden did not respond to a request for comment.
The people familiar with the matter declined to reveal their identities because they were not authorized to speak to the media.
“Country Garden is trying hard to meet its debt obligations, but whether this can continue will depend on the effectiveness of this round of stimulus and regulatory relief,” said Gary Ng, Natixis’ chief economist for Asia Pacific.
The latest government stimulus measures over the past few days included reducing current mortgage rates and preferential loans for first home purchases in major cities.
Ng said the latest stimulus should help stabilize the domestic market and consumer confidence, allowing developers to deleverage less painfully, although more is needed to reverse the decline in income growth in a slowing economy.
Faltering economy
The cash squeeze on Country Garden highlights the fragile state of China’s real estate sector, which accounts for nearly a quarter of the economy and whose condition has deteriorated since the start of a government crackdown on high leverage in 2021.
What makes matters worse is the lackluster post-pandemic economic recovery.
A private sector survey showed on Tuesday that services activity grew at its slowest pace in eight months in August, with weak demand continuing to weigh on the economy and stimulus measures failing to significantly revive consumption.
“With weak domestic demand and falling house prices in small Chinese cities in particular, concerns remain about the fragility of the property sector,” said Susannah Streeter, head of finance and markets at Hargreaves Lansdowne, UK.
“Stimulus efforts to increase mortgage lending are welcome, but a much larger package of support will likely be needed to restore more confidence in the sector, and put exposed mortgage companies on a firmer footing.”
Extension of maturity
Some Country Garden dollar bonds added two points to their prices after news of Tuesday’s payments — a sign that the bonds were trading at accruing interest, or with expectations of coupon payments, traders said.
However, prices remained at faltering levels, ranging between 11 and 15 cents to the dollar.
Country Garden’s stock price fell nearly 1%, paring some of its losses from earlier in the day. The Hang Seng Mainland Property Index (.HSMPI) and the China CSI 300 Property Index (.CSI000952) both lost more than 2%.
The interest payments on the offshore bonds came after Country Garden on Friday received approval from local creditors to extend the maturity of a 3.9 billion yuan ($536 million) special bond.
Country Garden has not defaulted on any debt obligations, either at home or abroad. However, it has signaled the risk of default if its financial performance continues to deteriorate after recording a record loss in the first half of the year.
The developer has about $162 million in foreign bond interest payments due through the rest of the year, data from researcher CreditSights showed.
(Reporting by Xie Yu in Hong Kong, Jason Xue in Shanghai and Siddharth S. in Bengaluru; Preparing by Muhammad for the Arabic Bulletin) Writing by Sumit Chatterjee. Edited by Christopher Cushing
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