Country Garden, a Chinese Company, Faces Default Risk After Failing to Make Bond Payment

20 Oct, 2023

Country Garden, a Chinese Company, Faces Default Risk After Failing to Make Bond Payment

China's property sector crisis has intensified as Country Garden, the nation's largest developer in terms of sales, has reportedly failed to meet the final deadline for an interest payment on a dollar bond, putting the company at risk of default.

This prominent real estate company, burdened with approximately $200 billion (£163 billion) in liabilities and nearly $11 billion in dollar-denominated offshore bonds, was obligated to make a $15.4 million coupon repayment this week, which it failed to do, according to reports. Consequently, its stock price dropped by 4% in Hong Kong on Thursday, marking a staggering 74% decrease since the beginning of the year.

Despite the financial challenges, Country Garden refuted rumors of its founder and chair leaving China. In an official statement, the company affirmed that both its founder, Yang Guoqiang, and his daughter, Yang Huiyan, who serves as the company's chair and holds the majority ownership, continue their regular activities in China.

Yang Guoqiang's journey from a humble background to becoming a successful property developer earned him nicknames such as "the most grassroots tycoon" and "Universe's No. 1 property developer." He built his fortune over years, initially working as a farmer and on construction sites before venturing into property development. Just two years ago, his daughter was recognized as the richest woman in Asia, amassing an estimated fortune of $29.6 billion, prior to the burst of China's property bubble.

Country Garden has been grappling to avert a default on its international debts. Last week, the company acknowledged that it was unlikely to "meet all of its offshore payment obligations when due or within the relevant grace periods." Furthermore, it disclosed that its sales were facing "remarkable pressure," and available funds were continually dwindling.

As a result, creditors are urgently seeking discussions with the developer, as reported by Reuters. Two groups of bondholders have emerged, both seeking conversations regarding a potential debt restructuring package. One of these groups holds around $2 billion of Country Garden's offshore bonds and comprises international and fund manager investors.

Credit rating agency Moody's has expressed the possibility of downgrading the developer's "corporate family rating" if the prospects for its creditors' recovery deteriorate further. Moody's already placed Country Garden's senior unsecured rating at C, which is at the bottom of its rating scale.

The turmoil in China's property industry was initially ignited by authorities cracking down on developers' high debt levels, which led to the default of Evergrande on portions of its massive $300 billion debt in late 2021. Given that property contributes more than a quarter of China's economy, the resulting construction delays and plummeting housing sales have significantly hampered economic growth. Evergrande, the world's most indebted developer with a debt load of $340 billion, is set to face a winding-up hearing in Hong Kong at the end of the month. Its debt restructuring plan encountered obstacles in September due to an ongoing investigation.