Chinese property developer Country Garden has reported a record loss of Rmb48.9bn ($6.7bn) for the first half of the year. This comes as the company grapples with the liquidity crisis affecting the real estate sector in China. The results indicate the dire situation faced by an industry responsible for over a quarter of economic activity in the country.
Country Garden’s losses have steadily increased amidst a two-year real estate liquidity crisis that began with the default of developer China Evergrande in 2021 and has started to impact the Chinese investment industry. The company’s losses have grown from Rmb6.7bn for the second half of 2022. In contrast, in the first six months of last year, Country Garden recorded a profit of Rmb612mn.
Despite the losses, the company reported a 39% increase in revenues for the first half of this year, amounting to Rmb226bn. However, Country Garden acknowledged that it had reduced prices for some of its property projects to ensure timely delivery of finished properties.
Concerns over Country Garden’s financial stability heightened when it missed coupon payments on international bonds. The company has now requested a 40-day grace period from Chinese creditors for the maturing of a renminbi bond next week. With liabilities of about Rmb1.36tn as of the end of the first half of 2023, Country Garden stated that it would consider adopting various debt management measures to address the phased liquidity pressure it is facing.
The Chinese government had previously tightened regulations on borrowing by developers during the pandemic but has since relaxed its approach to support economic recovery. In response to the housing market slowdown, the southern cities of Guangzhou and Shenzhen have eased mortgage lending conditions for first-home buyers.
Chinese developers, including Country Garden, face $38bn in renminbi and dollar bond payments over the next four months. This has raised concerns among industry experts who believe that developer defaults will continue due to persistent cash flow pressures. Any policy support from the government is expected to take time to have an impact on cash flow, home sales, and construction starts.
Country Garden had previously planned to raise $300mn from a share offer in July but canceled the deal at the last minute. The developer has now announced plans to issue HK$270mn ($34mn) of new shares in Hong Kong at a 15% discount to its closing price on Tuesday, with the funds raised intended for the repayment of existing loans.
Following the release of the company’s half-year results, shares in Country Garden rose by 5.7% in Hong Kong. However, the stock has still experienced a significant decline of two-thirds in market capitalization, representing a loss of over $7bn, year-to-date. This situation highlights the challenges faced by Chinese property developers and the potential implications for the wider economy.