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Country Garden Creditors Fear it Won’t Dodge Another Bullet

The developer averted a catastrophic default this week at the very last minute but its offshore creditors warn there will have to be a debt restructure soon

The company logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai, China August 9, 2023. Photo: Reuters
The company logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai, China, on August 9, 2023. Photo: Reuters


Country Garden creditors have admitted there are doubts whether the real estate giant will be able to meet its upcoming debt deadlines – without liquidity support soon or a major debt revamp.

The Chinese developer averted a catastrophic default this week at the last minute but with its financial situation still precarious and prospects of China’s property sector remaining grim, the offshore creditors say they are worried

Country Garden’s financial woes have become the latest to hit China’s property sector, which was once a pillar of growth for the world’s second-largest economy but has become its biggest drag since 2021 amid an unprecedented liquidity crisis.


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The company paid $22.5 million in dollar bond coupons on Tuesday, hours ahead of a grace period deadline, pulling back from the brink of default for the second time in four days and bringing relief to the property sector.

“Historically, external creditors have really not done well in restructurings coming out of China,” said Edward Al-Hussainy, senior currency and rates analyst and head of emerging market fixed income research at Columbia Threadneedle, which holds some of Country Garden’s dollar bonds.

“The fact that they paid this coupon tells me that there’s some conversation happening at the company management level and very likely between company management and government at this stage, that liquidity, or some form of liquidity support, is becoming more likely.

“Otherwise, servicing this debt under today’s circumstances makes no sense.”

Country Garden, one of the few large Chinese developers that have not defaulted on debt obligations, has been facing liquidity pressure with reduced available funds as sales plunged, its interim financial statements show.

It posted a 48.9 billion yuan ($6.68 billion) first-half loss, a record for the developer.

Its net gearing ratio, which measures financial leverage, rose to 50.1% in the first half from 40% at the end of 2022. It has around $14.8 billion worth of debt due within 12 months, while its cash levels are around $13.8 billion. The company’s total liabilities were around $191 billion, unchanged from end-2022.

Country Garden has at least five coupon payments due this month, including two relatively sizeable dollar bond coupons worth $15 million due on September 17, and $40 million on September 27, each with a 30-day grace period.

The developer may delay the upcoming coupon payments, use the grace period to come up with a restructuring plan, and try to convince investors to accept it, said a portfolio manager with a US asset manager, which owns some Country Garden bonds.


Beijing’s Support Measures

Given the company’s cash flow will remain tight as property sales recovery is expected to be sluggish, it would be a tough balancing act for the company in the absence of “meaningful” liquidity support, said the portfolio manager.

Investors are focusing on near-term sales prospects for Country Garden and its peers after the Chinese authorities rolled out a raft of support measures for the embattled property sector in the last few weeks.

Those measures included lowering existing mortgage rates and preferential loans for first-home purchases in big cities, but analysts say more was needed to stabilise the sector, restore consumer confidence and sow the seeds for an eventual recovery.

Despite those measures, China’s new home prices fell for the fourth month in August, according to a private survey on Friday, as the property debt crisis kept confidence at a low ebb.

“Country Garden will probably make full use of the grace periods… it still looks challenging for them to generate enough cash for the upcoming payments, both onshore and offshore,” said Ting Meng, a senior credit strategist at ANZ.

Benjamin Bennett, head of investment strategy and research at UK asset manager Legal & General Investment Management, said it would be a “huge surprise” if the developer kept on paying coupons.

“Hopefully they are using the time they’ve bought themselves in recent days to work out a proper restructuring plan so we don’t have the same extended uncertainty we had with earlier defaulters,” he said.


  • Reuters with additional editing by Sean O’Meara


Read more:

Chinese Developer Country Garden Settles Late Bond Payments

Country Garden Voices ‘Deep Remorse’ for $6.7bn First Half Loss

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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