A construction site of apartment buildings by Chinese developer Country Garden is pictured in Tianjin, China on August 18, 2023. REUTERS/Tingshu Wang/File Photo Obtain licensing rights
HONG KONG/BEIJING (Reuters) – Country Garden made an interest payment on a U.S. dollar bond hours before the grace period deadline, a person close to the company said, moving it away from the brink of default for the second time in four days. Bringing relief to the real estate sector affected by the crisis.
China’s largest private real estate developer (2007.HK) failed to make coupon payments on bonds totaling $22.5 million due on August 6, exacerbating concerns about its cash position and keeping markets on edge throughout the bond’s 30-day grace periods.
Although the amount was relatively modest, the failure to repay would have undermined the fragile hopes in financial markets that steady political stimulus in China had begun to stabilize the ailing economy and real estate market.
Bondholders and lawyers said it would also have raised the prospect of defaulting on another dollar bond as well as calls from creditors to speed up payments, while worrying about spillover risks in the world’s second-largest economy.
On Tuesday, Country Garden also offered to extend the repayment of eight domestic bonds worth 10.8 billion yuan ($1.48 billion) by three years, according to people familiar with the matter and documents seen by Reuters.
Documents sent to local bondholders showed that those bonds, issued by Country Garden and a subsidiary, were due to mature and be offerable in 2023 and 2024.
Country Garden did not respond to a request for comment.
People familiar with the matter declined to be identified because they are not authorized to speak to the media.
“Country Garden is trying hard to meet debt obligations, but whether that can continue will depend on the effectiveness of this round of stimulus and regulatory easing,” said Gary Ng, Natixis chief economist for Asia Pacific.
The latest government stimulus measures over the past few days have included lowering existing mortgage rates and preferential loans for first home purchases in major cities.
Ng said the latest stimulus should help stabilize domestic market and consumer confidence, allowing developers to deleverage less painfully, although more is needed to reverse the decline in income growth in a slowing economy.
faltering economy
The monetary pressure on Country Garden highlights the fragile state of China’s real estate sector, which accounts for nearly a quarter of the economy and has deteriorated since the government’s crackdown on excessive leverage began in 2021.
Adding insult to injury is the lackluster post-pandemic economic recovery.
A survey of the private sector showed on Tuesday that services activity grew at its slowest pace in eight months in August, as weak demand continued to weigh on the economy and stimulus measures failed to significantly revive consumption.
“With weak domestic demand and declining house prices in smaller Chinese cities in particular, there remain concerns about the fragility of the property sector,” said Susanna Streeter, Head of Finance and Markets at Hargreaves Lansdowne, UK.
“Stimulus efforts to increase mortgage lending are welcome, but it is likely that a much larger package of support will be needed to restore more confidence in the sector and put exposed real estate firms on a firmer footing.”
Extended maturity
Some Country Garden dollar bonds added a couple of points to their prices after news of Tuesday’s payments — a sign that the bond was trading with accrued interest, or with expectations of coupon payments, traders said.
However, prices remained at faltering levels, ranging between 11 and 15 cents against the dollar.
Country Garden’s share price fell nearly 1%, paring some of its losses earlier in the day. The mainland Hang Seng Real Estate Index (.HSMPI) and the China CSI 300 Real Estate Index (.CSI000952) each lost more than 2%.
The interest payments for overseas bonds came after Country Garden on Friday won approval from local creditors to extend the maturity of 3.9 billion yuan ($536 million) of special bonds.
Country Garden has never defaulted on any debt obligation, either at home or abroad. However, it indicated the risk of default if its financial performance continues to deteriorate after posting a record loss in the first half of the year.
Data from researcher CreditSights showed the developer had about $162 million in overseas bond interest payments due during the rest of the year.
(Reporting by Xie Yu in Hong Kong, Jason Xue in Shanghai, and Siddharth S. in Bengaluru – Reporting by Mohamed for the Arabic Bulletin) Writing by Sumit Chatterjee. Edited by Christopher Cushing
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