Shares of China’s Country Garden hit a record low on Friday, turning the once top private property developer into a battered stock amid uncertainty over its $194 billion debt.
Reports that the developer was considering a debt restructuring coupled with a warning that it might report up to $7.6 billion in losses for the first half of the year, triggered a sell-off that saw the company’s shares closing at HK$0.98.
Country Garden shed as much as 14.4% in early trade to touch a record low of HK$0.89 ($0.1139). The property giant’s shares have lost close to 30% of their value this week.
The initial sell-off was triggered by the developer missing dollar coupon payments worth $22 million earlier this week, a considerably small sum compared to its massive liabilities.
The company has a 30-day grace period for the missed payments, but fears of default loom over the developer as it faces more than 9 billion yuan ($1.25 billion) of total onshore bond payment obligations in September alone.
The company does not have enough cash to meet the payments due so it might ask creditors for an extension to ensure liquidity for home construction, media outlet Caixin reported on Thursday evening, citing unnamed people close to the company.
Debt restructuring to start ‘soon’
Chinese news outlet Yicai reported on Friday that Country Garden is set to begin a debt restructuring process “soon”.
China International Capital Corporation (CICC) has been hired as a financial adviser, the report citing unnamed sources said.
On Thursday, Country Garden forecast a net loss of up to 55 billion yuan ($7.6 billion) for the first half compared with a 1.9 billion yuan net profit a year ago, citing a drop in gross margin and an increase in inventory impairments.
The company said it has set up a special task force, headed by its chairman Yang Huiyan, to find ways to improve its operations at a time when the Chinese property sector grapples with a liquidity crunch.
“One shall pick himself up from where he has fallen. The company will adhere to its responsibilities, spare no effort in self-rescue,” the company said in a statement.
Yang was Asia’s richest woman prior to China’s property crisis, but Forbes says her personal wealth has plummeted from about $29.6 billion in 2021 to around $4.7 billion now. Figures from other outlets differ but are not far from those amounts.
‘Insufficient understanding of risks”
In a filing, Country Garden apologised for its inability to properly forecast the depth and intensity of the China’s property downturn or to take earlier countermeasures.
“The understanding of potential risks such as excessive investment proportion in third-and fourth-tier and even lower-tier cities …were insufficient,” it added. The developer has a large exposure to lower-tier cities.
“We think the profit warning is not a surprise to the market …however, the read-across from the inventory impairment and the recent property price decline is negative to other developers, including state-owned developers,” UBS analyst John Lam said in a research note.
Ratings agency Moody’s on Thursday downgraded Country Garden’s corporate family rating to Caa1 from B1, citing heightened liquidity and refinancing risk after the company missed bond payments.
All eyes on China’s regulators
Once considered as one of the more financially sound developers, Country Garden’s woes could have a chilling effect on China’s homebuyers and financial institutions, further squeezing a sector that has already seen plunging sales, tight liquidity and a series of developer defaults since late 2021.
Industry executives and analysts said the developer’s missed payments this week could help prod regulators into rolling out stronger aid measures. But they had little faith such steps would turn the debt-laden sector around anytime soon.
China’s Politburo, a top decision-making body of the ruling Communist Party, pledged in late July to adjust property policies in a timely manner, fuelling speculation stimulus was on the way for a sector that accounts for a quarter of its economy. However, no major moves have been made by the top regulators to date.
Other major Chinese property developers including China Evergrande Group and Sunac China have already proposed offshore debt restructuring terms.
Smaller peer China Aoyuan Group said on Thursday holders of 75.9% of its offshore note principals supported its restructuring terms, passing the 75% threshold required.
Fantasia Holdings, the first developer to announce a debt restructuring during the current crisis, resumed trading on Friday after a 16-month halt, with its shares dropping 60% after it released long-overdue financial results.
Zhenro Properties, which had also defaulted on debt, said on Thursday it expected a net loss of up to 1.6 billion yuan in the first half, narrowing from a 2.6 billion yuan loss a year ago.
- Reuters, with additional inputs from Vishakha Saxena and Jim Pollard
NOTE: This report was amended on August 11, 2023 to change the top image and add details of Yang’s wealth.