HONG KONG/NEW YORK (Reuters) – Country Garden (2007.HK)’s deal with creditors to roll over domestic debt payments by 3.9 billion yuan ($537 million) boosted shares in the developer on Monday and gave crisis-hit China a boost. The real estate sector has some much-needed respite.
Country Garden shares jumped as much as 19% to their highest level since Aug. 10, and are on course for their biggest one-day percentage increase since November. Hong Kong’s Hang Seng Mainland Property Index (.HSMPI) rose more than 9%.
But while investors in the company may breathe a sigh of relief, it remains to be seen whether a raft of government stimulus measures will soon help revive demand, ease monetary pressure in the sector and lift gloom over the broader financial system.
Beijing on Monday added to its series of policy measures in recent months to revive the world’s second-largest economy, by agreeing to set up a special office to promote the development and growth of the private economy.
The private sector is responsible for 80% of new jobs in urban areas, but it has struggled to attract investment amid a fragile economic recovery during the first half of the year, with business owners also constrained by weak domestic demand.
Country Garden’s worsening financial woes have further highlighted the fragile state of the country’s real estate industry, which accounts for nearly a quarter of the economy and has been in severe debt distress since 2021.
Being financially sound compared to its peers, China’s largest private developer did not default on debt obligations, either at home or abroad, even coupon payments on dollar bonds last month after slowing home demand hurt its cash flow.
Since then, the Chinese authorities have taken a number of measures, the most important of which was the reduction of existing mortgage rates and preferential loans for the purchase of first homes in major cities.
“We will see in the coming months whether these supply-side measures can revive home-buying demand, which is critical to the fate of Chinese developers and their ability to deal with their upcoming debt maturities,” said Tara Hariharan, managing director at Global Macroeconomics. Managing the NWI Hedge Fund in New York.
She noted that Country Garden and other developers face large maturities this year.
And in the deal reached after its proposal was voted on late Friday, Country Garden is now allowed to pay off the wild debt in installments over three years, rather than meet its obligations by September 2nd.
The corporate logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai, China on August 9, 2023. REUTERS/Ali Song/File photo Obtain licensing rights
Restructure the talks
Country Garden also remitted interest payments linked to a RM100 million ($21.5 million) bond due on Sept. 2, a source familiar with the matter said, in another sign that the company is striving to meet payment deadlines and avoid default.
The source asked not to be named due to the sensitivity of the matter.
The developer also faces another looming debt repayment challenge — a grace period expiring Tuesday for missed coupon payments last month totaling $22.5 million on offshore dollar notes.
Three of its external creditors said its ability to avoid default internally through the rollover deal had raised hopes that it would be able to make interest payments on those bonds.
The bondholders declined to be named because they are not authorized to speak to the media.
After the interest payments are made, the creditors said they expect Country Garden to enter into negotiations to restructure its entire external debt to avoid a “default”, similar to what it has done with internal creditors.
Country Garden did not immediately respond to a request for comment.
While China’s real estate industry may have found some relief, some market participants said they plan to stay out of the sector until there is a recovery in home sales.
“We sold all of our Chinese real estate shares in April 2020 and have not repurchased any since,” said Qi Wang, CEO of Hong Kong-based MegaTrust Investment. “I wouldn’t touch my developers with a ten-foot pole right now.”
($1 = 7.2606 CNY = 4.6540 ringgit)
(Reporting by Xie Yu in Hong Kong, Carolina Mandel in New York, and Joe Cash in Beijing – Reporting by Mohamed for the Arabic Bulletin) Writing by Sumit Chatterjee. Editing by Edwina Gibbs and Lincoln Feast
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