China’s Country Garden prevents worsening of debt crisis with payment

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By Jackie Cai




Chinese developer Country Garden Holdings Co. took steps to prevent its debt crisis from worsening, paying off a yuan note ahead of schedule and selling a stake in a mall operator.

 


The distressed builder’s onshore unit, Country Garden Real Estate Group Co., repaid in full an 800 million yuan ($111 million) bond with a put option that expired Wednesday, it said in a filing to the Shenzhen Stock Exchange. It also sold an investment in Zhuhai Wanda Commercial Management Group Co. for 3.07 billion yuan to raise cash for offshore debt restructuring.


The latest moves by China’s former top builder injected a sense of relief among investors, following a dollar bond default in October that roiled financial markets. They also came hot on the heels of a top housing official’s pledge to avoid a cascade of debt defaults by developers, among the strongest commitments yet to ease the industry’s unprecedented cash crunch. 


“Country Garden is keen to maintain its reputation of not defaulting onshore to mitigate the negative impact on the market,” said Ting Meng, senior credit strategist at Australia & New Zealand Banking Group Ltd. “For the offshore bonds, all eyes are on its debt restructure plan.”


Country Garden’s shares rose as much as 9.1% in Hong Kong on Thursday, before paring the gains to less than 3%. At around HK$0.80 a share, it remains a penny stock. A Bloomberg Intelligence stock gauge of Chinese developers jumped close to 3% earlier. The firm’s dollar bonds still trade at deeply distressed levels of 7-8 cents on the dollar, Bloomberg-compiled prices show. 

 


The firm said in a statement explaining its stake sale in Zhuhai Wanda that it’s working to resolve liquidity pressure and seeking a “comprehensive solution” to its offshore debt risks. 


The Guangdong-based developer overtook rival China Evergrande Group as the epicenter of the property crisis after its October default. Its potential debt workout, which promises to be one of the biggest restructuring exercises in the world’s No. 2 economy, is attracting close scrutiny. Among dozens of builders that have fallen into distress following Beijing’s crackdown on excessive leverage, few have managed to work out a deal with creditors.  


While Country Garden may have succeeded in averting a bigger crisis for now, the challenges of pulling off an offshore debt deal and reviving property sales are keeping investors on edge. Though policymakers have stepped up efforts this year to arrest a housing slump and ease developers’ funding woes, home sales have plunged in 18 of the past 22 months. 


Increased willingness by large developers to repay debt and a more supportive narrative by policymakers have eased “worries of a collapse of investment-grade property bonds and shaken out some equity short position,” said Zerlina Zeng, senior credit analyst at Creditsights Singapore LLC. However, “the fact that Country Garden repaid the onshore bond in full and on time but left offshore debt unresolved showed that offshore dollar bondholders are deeply subordinated in the payment waterfall.”


At least several holders of the yuan note received payment Thursday morning, said people familiar with the matter who requested anonymity discussing private matters. After the latest yuan note repayment, the developer has around $13 billion of bonds outstanding, according to data compiled by Bloomberg.  


Helmed by one of China’s richest women, Yang Huiyan, Country Garden’s sheer size has made it important to the economy, where the property market along with related industries accounts for about 20% of gross domestic product. Along with Evergrande, whose default in 2021 opened the door to record nonpayments from other builders, it has come to symbolize the nation’s broader real estate crisis. 


Authorities recently widened the rescue campaign by mulling a potential list of 50 developers eligible for financing, and an unprecedented proposal to allow banks to offer unsecured loans to qualified builders, among other measures. Country Garden is included in the so-called white list, Bloomberg reported last month. 

“Country Garden may have already received government’s backing though it has not been confirmed,” said Hong Hao, chief economist of Grow Investment Group. “It’s in line with the government’s intention to meet all reasonable financing demand for developers regardless of their ownership,” Hong said, adding that gains in property stocks may not sustain if sales continue to be weak.  

Country Garden averts worsening of debt crisis with payment


Chinese developer Country Garden Holdings  took steps to prevent its debt crisis from worsening, paying off a yuan note ahead of schedule and selling a stake in a mall operator.

 


The distressed builder’s onshore unit, Country Garden Real Estate Group, repaid in full an 800 million yuan ($111 million) bond with a put option that expired Wednesday, it said in a filing to the Shenzhen Stock Exchange. It also sold an investment in Zhuhai Wanda Commercial Management Group  for 3.07 billion yuan to raise cash for offshore debt restructuring.

 


The latest moves by China’s former top builder injected a sense of relief among investors, following a dollar bond default in October that roiled financial markets. They also came hot on the heels of a top housing official’s pledge to avoid a cascade of debt defaults by developers, among the stro­n-­ gest commitments yet to ease the industry’s unprecedented cash crunch.  “Country Garden is keen to maintain its reputation of not defaulting onshore to mitigate the negative impact on the market,” said Ting Meng, senior credit strategist at Australia & New Zealand Banking Group.