Country Garden, the embattled Chinese property giant, has reportedly won approval from local creditors to delay repayments on a maturing bond, avoiding a default for now. This is the first debt extension the company has secured since its liquidity crisis became public last month and brings temporary relief to China’s real estate industry. Investors feared that Country Garden’s debt problems would affect other companies in the sector and have a negative impact on the economy. However, the company still faces challenges as it failed to pay the interest on two dollar bonds last month, and a grace period on those missing payments expires this week. If the company fails to pay those creditors, it could still lead to a default.
Following reports that bondholders had agreed to a plan for the company to extend payment for a 3.9 billion yuan ($540 million) bond that matured on Saturday, Country Garden’s stock surged 15% in Hong Kong. This has been the biggest daily gain for the company in nine months, although it remains down 62% for the year. The property sector also received a boost, leading to a 2.5% increase in Hong Kong’s Hang Seng Index, which had its best day in over a month. The stock market was closed on Friday due to a typhoon.
According to the agreement with creditors, Country Garden will be able to stretch its payment of the outstanding principal of $540 million into 2026. However, the interest on the bond must still be paid as originally scheduled. Over 56% of the affected bondholders, including major state-owned banks and private equity funds, voted in favor of the agreement. Analysts suggest that this deal will reduce pressure on Country Garden and improve its long-term debt servicing ability.
Despite this development, market analysts warn that the extension is just a “near-term reprieve.” Lessons learned from the default of China Evergrande earlier this year indicate that the lack of an eventual resolution to Country Garden’s debt problems remains a “headwind” for investors. The company, which was China’s largest residential developer by sales last year, is currently facing a cash crunch. It recorded a record loss of $7 billion for the first half of this year, citing a decline in the property market and a challenging refinancing environment. Country Garden has nearly $200 billion in total liabilities and needs to pay off its debts amid mounting pressure. Moody’s reports that it has about 31 billion yuan ($4.3 billion) in bonds set to mature through the end of 2024.