China’s Country Garden suspends trading of onshore bonds amid talk of debt restructuring
CNN
By Laura He, CNN
Hong Kong (CNN) — Country Garden, one of China’s top property developers, suspended trading in 11 of its onshore bonds on Monday, adding to speculation the company may be preparing to restructure its debt as it struggles to raise enough cash in time to avoid default.
Shares in Country Garden plummeted 16% on Monday to a new record low, leading the losses among the Hang Seng Index constituents, as investors pondered whether the property giant’s woes could further weigh on an already sluggish recovery in the world’s second largest economy.
Those shares have lost a third of their value since last Tuesday, when reports surfaced that the real estate firm missed interest payments on two dollar bonds. The news triggered a sell-off in the company’s domestic bonds, with several of them forced to halt trading after falling by more than 20%.
On Saturday, Country Garden announced it would suspend trading in 11 of its domestic bonds from Monday as it was planning to hold a bondholders meeting on the arrangement of debt repayment, it said in an exchange filing, without elaborating.
“The company will communicate with all stakeholders and consider adopting various debt management measures to safeguard the company’s long-term development in the future,” it said.
A special task force headed by the company’s chairman has been established to cope with the “prevailing difficulties,” it added.
The company hasn’t responded to a CNN request for comment.
On Friday, state-owned financial publication Yicai reported that the developer was preparing for a debt restructuring and has hired CICC, a Chinese investment bank, as a financial adviser to lead the work.
Corporate debt restructuring is a process that usually involves negotiating with creditors to reorganize a distressed company’s outstanding obligations. The purpose is to improve or restore liquidity at the company, so that it can continue its operations and avoid bankruptcy.
Country Garden acknowledged last Thursday that it was facing a temporary “liquidity pressure” due to deteriorating sales and a difficult refinancing environment. This was the “biggest difficulty” it had found itself in since its establishment in 1992, it said, adding that it was committed to carrying out a “self-rescue” by all necessary means.
Its problems have damaged investors’ confidence in the real estate industry. Shares in its rivals Longfor Group (LNGPF) and China Resources Land (CRBJF) fell 1.8% and 1% respectively on Monday. China Overseas Land and Investment lost 1.1%.
Troubled giant
Country Garden is the latest major Chinese developer to run into trouble as the country’s property industry grapples with a historic downturn.
In 2021, Evergrande Group collapsed after it failed to repay billions of dollars of debt, triggering a wave of defaults across the industry. Home sales have declined for more than a year, as households became reluctant to purchase new homes due to the then prevailing Covid curbs and rising uncertainty about the economy.
The government has been trying to boost demand in the real estate sector, which accounts for as much as 30% of the country’s GDP. Measures have included slashing mortgage rates for first-home buyers and extending maturing loans to developers.
But these efforts have so far appeared ineffective, with new home sales by the country’s 100 biggest developers down 33% in July.
The crisis at Country Garden is likely to spill over to the property industry and financial markets, analysts from Moody’s Investors Service said Friday.
“Specifically, it is likely to further weaken market sentiment and delay the recovery of China’s property sector,” they wrote in a research note.
So far, Country Garden hasn’t yet defaulted on any debt. It has a 30-day grace period to pay the interest on the two dollar bonds due earlier this month.
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