HONG KONG/SHANGHAI, Aug 31 (Reuters) – Embattled Chinese property developer Country Garden (2007.HK) faces a critical test of investor confidence on Thursday, as creditors prepare to vote on its proposal to delay payments for a 3.9 billion yuan ($535.4 million) onshore private bond.
The vote, which is expected to conclude by 10 p.m. (1400 GMT) Hong Kong time, is a key hurdle Country Garden will have to overcome as it strives to avoid default amid a spiralling financing crisis and opposition from some creditors.
The cash-strapped developer has been in discussions with onshore creditors to extend payments on the bond. It has proposed to repay the debt in installments over three years instead of meeting its obligations by the deadline on Saturday. The bond is not publicly traded.
China’s real estate market, which accounts for roughly a quarter of the economy, is grappling with a debt crisis that has rattled global markets and sparked fears of financial system contagion at a time when the country is already struggling with a broader slowdown.
“In the onshore market, debt extension is a common practice, and many developers have reached an agreement with investors,” said Gary Ng, Asia Pacific senior economist at Natixis.
Ng said an in-house analysis had found 0.4% of China’s corporate bonds were extended on a trailing 12-month basis, keeping the actual default rate low at 0.08% by the end of June.
“Country Garden may be able to extend its debts, but it does not mean the company and property sector are out of the woods unless home sales rebound.”
Some creditors said they told the company last week they would not support an extension.
Bondholders appear set to vote on more than three proposals on Thursday. The first is an extension that would allow the firm to repay the principal by 2026, and another added this week is a grace period of 40 days to make payment should the extension proposal be vetoed.
On Wednesday, creditors holding 10.5% of the outstanding principal added a new proposal where they can vote to immediately call the company in default.
The company declined to comment ahead of the vote.
DEFAULT RISKS
An onshore bond restructuring lawyer, who declined to be identified because of the sensitivity of the matter, said the worst case was that Country Garden would default later on Thursday if that proposal was passed by bondholders.
One bondholder said he wanted the company to liquidate now so creditors can
recover their assets earlier
.
Country Garden – China’s largest private developer – on Wednesday posted a staggering $6.7 billion in first-half losses and warned of default risks.
It said that if its performance continued to deteriorate, it might be unable to fulfill its financial covenants, which may result in default and cross-defaults of certain borrowings.
Country Garden’s total liabilities were about $194 billion by the end of June, unchanged from the end of 2022, based on its first-half financial results.
It faces 108.7 billion yuan ($14.91 billion) worth of debts due within 12 months, while its cash level falls short at around 101.1 billion yuan.
A default by Country Garden would exacerbate the country’s spiralling real estate crisis, put more strain on its struggling banks and could delay the prospect of a recovery of not only the property market, but the overall Chinese economy.
The company’s extension plan for the private bond calls for payments in seven installments ending in September 2026. Three initial installments will be made this year, with 2% of the principal each. The coupon will be kept at the same rate at 5.65% and paid annually.
The voting will be held via private meetings and it is unclear how quickly the results will be made available to the bondholders afterwards.
Country Garden’s Hong Kong-listed shares (2007.HK) ended 1.1% higher on Thursday, but have lost 67% so far this year, wiping out HK$49.5 billion ($6.31 billion) in market capitalisation.
CHINA TRIES TO STEM CRISIS
As pressure mounts on the real estate market, more Chinese cities are easing mortgage curbs in hopes of reviving consumer demand for homes.
Wuhan, the capital of Hubei province, said on Thursday it would let people take preferential loans for first-home purchases regardless of their credit record from Sept. 1, following major cities like Shenzhen and Guangzhou in easing mortgage rules.
A report by Goldman Sachs said it sees “a high possibility” that more big cities will follow suit in easing mortgages. If the move was broadly implemented in large cities it “may provide a modest growth…
Read More: China’s Country Garden faces crucial vote to delay onshore bond payments