Country Garden avoids default by extending onshore bond maturity

Country Garden, China’s largest private property developer, has received approval from its creditors to extend the maturity of one more onshore bond, as it tries to avoid default amid Beijing’s efforts to stabilise the crisis-hit sector. The maturity period of the cash-strapped Country Garden’s onshore bond has been extended by three years, according to sources with knowledge of the matter.

The bond, worth 1.5 billion yuan ($218 million), was due on Sept. 15, 2023. It is the seventh onshore bond that Country Garden has managed to postpone repayment on, following six other bonds worth 10.8 billion yuan ($1.48 billion) that were approved for extension on Monday.

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

Shares in Country Garden rebound after debt reprieve

Shares in Country Garden, which has not defaulted on any debt obligations so far, jumped as much as 14% in Hong Kong on Wednesday after the news of the bond extension. The company’s stock price has fallen nearly 61% since the start of the year, reflecting its deteriorating financial situation and market sentiment.

Country Garden has faced liquidity pressure with reduced available funds as sales plunged, its interim financial statements showed. It has 108.7 billion yuan ($14.9 billion) of debts due within 12 months, while its cash level is around 101.1 billion yuan as of end-June, according to the company’s interim financial statement.

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

Country Garden seeks to revive sales amid policy easing

Despite the temporary debt relief, investors are focusing on near-term sales prospects for Country Garden and its peers after authorities rolled out a raft of property support measures 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 is needed to stabilise the sector, restore consumer confidence and induce an eventual recovery.

“Investors will monitor how quickly Country Garden can revive its sales, going forward, with Beijing easing the curbs on the property sector,” said Ting Meng, a senior credit strategist at ANZ. “The developer is very likely to start similar extension negotiations with offshore creditors soon, given it will be challenging for it to service the outstanding debts with its current cash positions,” she added.

Any default by Country Garden would exacerbate the country’s spiralling real estate crisis, put more strain on its struggling banks and could delay the recovery of not only the property market, but the overall Chinese economy.

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