Title: Country Garden Faces Potential Default on $11 Billion Overseas Debt as Coupon Payment Deadline Approaches
Date: October 18, 2023
By: Scott Murdoch
Country Garden Holdings, China’s largest private property developer, is on the verge of a potential default on its $11 billion in overseas debt as it struggles to make a coupon payment. If the payment is not made, Country Garden will join numerous other Chinese developers who have already defaulted, exacerbating the crisis in the property sector, which accounts for a significant part of the country’s economy.
The deadline for the $15 million payment for a September 2025 bond is midnight in New York today (0400 GMT), and as of early Wednesday, the company had not made the repayments, according to a source familiar with the situation. Last week, Country Garden had already warned about its inability to meet offshore debt obligations.
With nearly $11 billion in offshore bonds and $6 billion in onshore loans, a default by Country Garden would trigger one of China’s largest corporate debt restructurings. The company has also missed other offshore payments in recent weeks, although these payments are still within their 30-day grace periods.
Country Garden remains in a better position with its onshore debt, having obtained extensions for its repayment obligations on an onshore bond. This extension has provided the company with some breathing room. Last month, the company successfully secured approval from creditors to extend the repayment on an onshore bond, marking the completion of the extension process for its eight bonds, worth 10.8 billion yuan ($1.48 billion), which have each been extended by three years.
However, the situation remains challenging for privately-run developers like Country Garden, who are struggling to generate sufficient contracted sales and access funding. A CreditSights report published on Tuesday highlighted the disparity between state-linked developers, who still have access to funding markets, and private firms who face increasing difficulties.
If Country Garden defaults, the company’s offshore creditors will begin negotiations with the firm’s financial advisors, which could potentially lead to a lengthy restructuring process due to the magnitude of the debt involved. Moreover, the bleak outlook for China’s property market is expected to further worsen the terms that offshore creditors may have to accept during the debt restructuring.
Data released on Wednesday revealed a 9.1% decline in property investment in China for the first nine months of the year, while sales by floor area dropped by 7.5%. Nationwide prices of new homes for September will be released on Thursday, providing further insight into the property market’s performance.
According to JPMorgan, 40% of Chinese home sales have defaulted on their debt obligations since 2021, with these companies, mostly private, issuing approximately $110 billion worth of high-yield offshore bonds. Hong Kong’s Hang Seng Mainland Properties Index is down 40% year-to-date, reflecting the turmoil in the property sector.
As the clock ticks towards the coupon payment deadline, Country Garden’s ability to honor its overseas debt obligations remains uncertain. The property developer’s potential default could have significant implications for both the company and the wider Chinese property market.