Chinese Homebuilder Country Garden Faces $7.1 Billion Loss in First Half of 2022
Country Garden, the largest property developer in China, announced on Wednesday that it suffered a staggering loss of $7.1 billion in the first six months of this year, further exacerbating concerns about the company’s financial stability. The deepening crisis in China’s real estate sector, caused by years of excessive borrowing, has left many developers burdened with insurmountable debt, and Country Garden, with a total debt of approximately $187 billion, is precariously close to collapse.
In comparison to a profit of 1.9 billion yuan in the same period last year, Country Garden recorded a net loss of 51.5 billion yuan for the first half of 2022. The company had anticipated this significant loss earlier this month, attributing it to the unprecedented difficulties faced by China’s property industry.
While revenue increased for Country Garden during the first half of the year, the company acknowledged that it offered discounts on properties to maintain sales volumes and ensure business continuity. However, this approach did not prevent a sharp decline in contracted sales, with a 60 percent drop in July compared to the previous year.
Country Garden expressed surprise at the magnitude and duration of the market downturn, admitting it had disproportionately invested in properties in smaller cities where the decline had been more severe. The company acknowledged that these misjudgments had led to the most severe difficulties it has encountered since its establishment.
As a means to address its pressing financial obligations, Country Garden announced plans to raise $34 million through the issuance of new shares. The company aims to release 350.6 million shares at 77 Hong Kong cents each next week. The proceeds will be used to repay dues owed to a subsidiary of Hong Kong-based Kingboard Holdings Limited, a materials and chemicals manufacturer.
Country Garden owes the Kingboard Holdings subsidiary approximately $200 million, which will be paid in installments, with the final payment due in December. The newly issued shares will represent approximately 1.3 percent of the company’s existing shares. They will be offered at a 15 percent discount to Tuesday’s closing price, given the current decline in Country Garden’s stock price, which has fallen by 67 percent so far this year.
Last week, Country Garden reached an agreement to sell a 27 percent stake in a commercial and residential property development in Guangzhou for $177 million. This move was a part of its efforts to alleviate its financial burden.
Once considered a fortunate survivor in China’s troubled property sector and the leading seller of homes for the past six years, Country Garden now faces an imminent collapse. As the company missed two interest payments to international bondholders earlier this month, it has until next week to repay those bondholders; otherwise, it will default on its obligations. Additionally, Country Garden is currently in negotiation with creditors to delay the repayment of a $350 million domestic bond, due this week, until 2026.
The situation of Country Garden underscores the challenges faced by China’s property market, as several dozen developers have already defaulted in the past three years. Notably, Evergrande, once a contender with Country Garden for industry supremacy, went bankrupt. Now, Country Garden finds itself in a similar predicament, desperately trying to avert collapse and find solutions to its pressing financial burdens.