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Country Garden Seen Defaulting on Its Offshore Debt

Country’s biggest private developer seems to have missed a payment deadline, which would put the group in default on $17 billion in offshore debt

Bondholders have given Country Garden a reprieve but the group still faces a range of hurdles this month and over the next year to pay its dues on multiple debts.
This image shows an under-construction residential site by Country Garden in Tianjin. Photo: Reuters


Country Garden – China’s biggest private developer – appears to have missed a deadline for payment of a $15 million coupon.

That has spurred expectation that the real estate giant has triggered cross defaults on its entire offshore debt, which includes nearly $11 billion in offshore bonds and $6 billion of offshore loans.

It sets the stage for one of the country’s biggest corporate debt restructurings – and a mass deleveraging of the sector and private developers.

One bondholder of the tranche in question, who declined to be identified discussing confidential information, said he had not received payment on the coupon as a 30-day grace period ended.


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Country Garden reiterated on Wednesday (October 18) that it expects to be unable to meet all of its offshore debt obligations and hopes to seek a “holistic” solution to its difficulties.

Its statement did not directly address the question of whether there had been a default and representatives of the company declined to comment.

“If they don’t pay within the grace period, it will be a default,” Cedric Rimaud, an analyst at GimmeCredit, an independent corporate bond research house said, referring to Country Garden’s missed payment.

Scores of other Chinese property developers have defaulted, reeling from liquidity problems since 2021 when the government introduced measures to rein in the sector’s very high debt levels.

The industry accounts for one-fourth of China’s economic activity and its prolonged woes have dragged on the world’s second-biggest economy, often rattling global financial markets.


Speculation on Evergrande founder

Country Garden’s missed payment comes on the heels of an investigation into the chairman of beleaguered peer China Evergrande, which has also defaulted and has been at the centre of the sector’s debt crisis.

Evergrande, whose founder is facing investigation for suspected criminal acts, appears to be facing forced liquidation because its plan to restructure debts of about $329 billion has failed.

Fears that Evergrande could be declared bankrupt at a court hearing later this month spurred a run on the Bank of Cangzhou, a regional bank in northern Hebei province, last week, after concern by many investors, who lined up to withdraw their deposits, that it could face a cash crunch because of its exposure to the property giant.

That led to the bank displaying a “cash wall” – a big pile of renminbi notes – and a statement by the bank that outstanding loans with Evergrande Group companies are far smaller than alleged on social media.

Meanwhile, a local media outlet said rumours about criminal acts by Evergrande founder Hui Ka Yan (aka Xu Jiayin) “are complicated and may take some time to clarify”.

They include speculation over his “silent technical divorce” from his wife Ding Yumei and whether she has control of billions in accumulated dividends distributed by Evergrande through the British Virgin Islands and Cayman Islands. Ding is alleged to have Canadian citizenship and gone abroad several months ago.


Shares and property investment sink further

Shares in Country Garden have lost some 70% of their value this year but gained some ground on Wednesday, rising nearly 1.4%.

Its dollar bonds are currently worth about 6 cents compared with 70 cents at the start of the year, according to LSEG data, and bondholders say they expect the debt to be restructured.

“I think Country Garden offshore US dollar bond pricing speaks for itself as to the current expectations,” said Real Estate Foresight co-founder Robert Ciemniak, who publishes on Smartkarma.

A US asset manager holding Country Garden’s dollar bonds added: “We are ready to walk away with some losses, but just hope the restructuring process could be efficient and less painful when compared to other companies like Evergrande.”

The asset manager declined to be identified.

Country Garden is, however, in better shape with its onshore debt, having gained some breathing room with three-year payment extensions for eight bonds worth 10.8 billion yuan ($1.5 billion).

China has rolled out a flurry of support measures in recent months to revive the property market but private developers are still struggling to source new capital, according to a CreditSights report published on Tuesday.

“With homebuyers still biased towards state-linked developers, those privately-run developers still not yet in a default would likely find staying afloat an increasingly challenging prospect, squeezed by both insufficient contracted sales generation and funding inaccessibility,” the report said.

China’s bleak property market outlook is likely to worsen the terms that offshore creditors may have to accept as debt is restructured.

Data on Wednesday showed property investment in China slid 9.1% for the first nine months of the year. Sales by floor area dropped 7.5%.

Nationwide prices of new homes for September will be released on Thursday. August data showed a 0.3% drop month on month, the fastest pace in 10 months.

Developers accounting for 40% of Chinese home sales have defaulted on their debt obligations since 2021, according to JPMorgan. Those companies, mostly private, have issued around $110 billion worth of high-yield offshore bonds.

Hong Kong’s Hang Seng Mainland Properties Index is down 40% so far this year.


  • Reuters with additional reporting and editing by Jim Pollard


NOTE: The headline on this report was amended on October 18, 2023.




Country Garden’s $17bn Offshore Debt on Verge of Default


China’s Country Garden Stocks Plunge on Foreign Debt Warning


Beijing Seen Taking Over China Evergrande’s Debt Revamp


China Evergrande Chairman ‘Suspected of Crimes’, Company Says


Hui Ka Yan and The Rise and Fall of China Evergrande


The Pledge That Brought Country Garden to the Brink of Default


Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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