Country Garden's entire offshore debt to be in default if Tuesday
payment not made
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[October 17, 2023] By
Clare Jim and Xie Yu
HONG KONG (Reuters) -Country Garden's entire offshore debt will be
deemed to be in default if China's largest private property developer
fails to make a $15 million coupon payment on Tuesday, the end of a
30-day grace period.
Non-payment of this tranche is set to trigger cross defaults in other
bonds as is standard in bond contracts.
With nearly $11 billion of offshore bonds and $6 billion of offshore
loans, a default by Country Garden would set the stage for one of
China's biggest corporate debt restructurings, as the country's property
sector crisis deepens and drags on economic growth.
"I think it’s a really high-profile and visceral reminder of just how
bad things are for the developers, but the private-sector developers in
particular," said Chris Beddor, deputy director of China Research at
Gavekal Dragonomics.
Lack of payment - which is expected after Country Garden warned last
week about its inability to meet offshore debt obligations - would make
the firm the latest in scores of Chinese developers who have defaulted.
Country Garden has also missed other offshore payments in the past few
weeks, though those payments still have not seen their 30-day grace
periods lapse.
One Country Garden bondholder, who declined to be identified, said there
had been no payment as of noon on Tuesday.
Country Garden declined to comment.
In a fresh reminder of just how nervous investors have become about the
crisis in the sector, another major property developer Gemdale saw its
stocks and bonds plunge on Tuesday after the resignation of its
chairman.
Gemdale said the resignation was due to health reasons but investors,
spooked by the sector's broader problems, were taking no chances and
rushed to sell its securities, analysts said.
Three of its bonds lost more than a fifth of their value before their
trade was suspended and its stock tumbled 9%.
In mainland China, Evergrande Group, which is in the centre of the debt
crisis, said on Monday it will hold a bondholder meeting on Wednesday
and Thursday to approve a plan to delay the buyback date for a 2.1
billion yuan ($287.11 million) puttable bond by one year to Oct 2024.
It also proposed to delay again the interest payments accrued between
Oct 2021 to April 2023 for the bond maturing in Oct 2025 by six months
to Oct 2024.
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A view of the residential apartments in Country Garden's Forest City
development in Johor Bahru, Malaysia August 16, 2023. REUTERS/Edgar
Su/File Photo
WIDESPREAD DEFAULTS
So far, developers accounting for 40% of Chinese home sales have
defaulted on their debt obligations since 2021, according to
JPMorgan. CreditSights figures show Chinese developers have
defaulted on more than $114.6 billion of $175 billion in dollar
bonds outstanding since 2021.
As more developers move towards restructuring debt, their offshore
creditors are expected to be offered less favourable terms amid a
worsening outlook for the country's real estate sector.
Country Garden has appointed Houlihan Lokey, China International
Capital Corporation (CICC) and law firm Sidley Austin as advisers to
examine its capital structure and liquidity position and formulate a
'holistic' solution.
Last week, printed circuit board maker Kingboard Holdings became one
of the first known listed companies to take legal action against
Country Garden when a unit, which is owed HK$1.6 billion ($204
million), issued a statutory demand seeking repayment.
Chinese courts have ordered a freeze on 63.68 million yuan worth of
shares in two units of Country Garden Services, a sister company of
the embattled developer, until October 2026, according to company
filings portal Tianyancha on Tuesday.
China has rolled out a flurry of support measures in recent months
to revive the property market. The sector, which accounts for a
quarter of the economy, has been in crisis since policymakers began
cracking down on the industry's high debt levels in 2021.
Analysts have said that the new measures are not enough to turn
around the sector any time soon, but industry data out this week
will be closely watched to gauge how much effect the steps have had
so far.
Property sales by floor area are due out on Wednesday and nationwide
prices of new homes for September will be released on Thursday.
($1 = 7.8203 Hong Kong dollars)
($1 = 7.3143 Chinese yuan renminbi)
(Reporting by Clare Jim, Xie Yu and Kane Wu; Editing by Edwina Gibbs
and Kim Coghill)
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