The Transformation of Country Garden: A Leading Figure in China's Escalating Real Estate Dilemma

27 Oct, 2023

The Transformation of Country Garden: A Leading Figure in China's Escalating Real Estate Dilemma

In China's prolonged real estate crisis, Country Garden has emerged as the latest focal point, overshadowing Evergrande's troubles. An industry group responsible for determining credit events recently ruled that the property giant experienced a "failure to pay" incident on October 18, as stated on the Credit Derivatives Determinations Committees' website.

This ruling follows reports from Bloomberg News and the Financial Times, which revealed that the once-largest homebuilder in the country had defaulted on an international bond, marking its first default after missing a grace period deadline last week. Country Garden has yet to respond to inquiries made by phone or email, and Citigroup, the reported bond trustee with authority to enforce its terms, declined to comment.

With $190 billion in liabilities, the developer had narrowly avoided default on several occasions over the past month. However, ongoing weaknesses in China's property market and challenging refinancing conditions have hindered its ability to generate sufficient funds to service $15 billion in debt due by June 2024. Earlier this month, the company had warned investors of the possibility of a default.

Country Garden now finds itself on the path to debt restructuring, potentially leading to a tumultuous financial collapse that could send fresh shockwaves through China's struggling economy. The real estate sector's woes persist, posing a significant drag on China's economy and exerting a potential impact on global growth, as noted by the International Monetary Fund (IMF) last week.

Despite Beijing's efforts to stabilize the sector, new home prices continued to fall for a third consecutive month in September, according to data from the National Bureau of Statistics (NBS). The crisis began over two years ago when the Chinese government imposed restrictions on developers' borrowing. In response, Beijing implemented numerous stimulus measures to rekindle growth, including reducing mortgage rates and abolishing home purchase restrictions in cities.

During a recent press briefing, Krishna Srinivasan, director of the IMF's Asia and Pacific Department, stressed the need for China to develop a comprehensive strategy for its real estate sector, particularly ensuring that pre-financed houses are constructed as planned. In China, most new homes are sold before they are even built, and resolving the issues within the developer community is crucial for restoring confidence in the market.