Country Garden, one of the giants of the Chinese real estate sector, on Wednesday, August 30, announced the threat of default on its huge debts.
According to the results of the first six months of 2023, this company recorded losses, the amount of which amounted to 51.5 billion yuan ($7 billion). Against the background of this unequivocally negative financial indicator, which is a record negative for the developer, there was a threat that the firm would be forced to default on its huge debts.
The company, which was one of the leaders of the Chinese housing construction industry last year, said that a kind of surprise and scenario, initially perceived as unlikely, was the downturn in the real estate market, which turned out to be excessively large-scale and too long. Country Garden also notes that the problem of reducing the pace of construction is especially relevant in small cities in China. The company stated that it was unable to promptly take measures that would mitigate the consequences of a large-scale downturn in the real estate market for its business.
In the statement of the developer, which was filed with the Hong Kong Stock Exchange, it is indicated that the firm experienced deep remorse due to unsatisfactory performance.
Country Garden also confirmed information that in August it was forced to miss interest payments to some of its bondholders. The firm separately noted that if the dynamics of a consistent deterioration in financial indicators continue, a decision may be made to declare a default. The company stated that there are currently many uncertainties that call into question the ability of the developer to continue operating in a continuous mode.
The giant of the Chinese real estate sector is currently in a kind of state of struggle with a liquidity crisis, which, according to some experts, can scale to the entire economic system of this Asian country and even have a certain degree of impact on other states.
Country Garden, based in Guangdong Province, on August 30 also announced its intention to issue new shares with a total value of $34.4 million for Kingboard Holdings, a laminate manufacturer from Hong Kong. With this decision, the company plans to compensate for the repayable loan, but the financial obligations associated with it have not been fulfilled.
The developer announced the probability of declaring default on the same day when the authorities of the large Chinese city of Guangzhou stated a relaxation of the rules for issuing mortgage loans to home buyers. This measure is an effort within the framework of attempts to support the real estate sector, the situation within which leaves much to be desired. The city government said that under the new rules, those citizens who previously had mortgages can be considered first-time home buyers and enjoy preferential financial offers.
The decision of the Guangzhou authorities came after three Chinese regulators published a joint statement in which they allowed municipal managers to relax mortgage restrictions. This decision was made as part of the central government’s efforts to revive consumer demand.
Some housing and tax authorities jointly announced the extension of personal income tax benefits for those who buy new homes within one year after the sale of the previous property.
Currently, the Chinese authorities are implementing several solutions to help the industry in a situation of global recession. Some measures contributed to the growth of the value of the shares of the company from Guangdong in Hong Kong. But since the beginning of 2023, this indicator has fallen by 67%, and the firm continues to be under pressure.
Earlier this week, Country Garden announced that its Malaysian project worth $ 100 billion, which is the largest foreign business initiative of the developer, is being implemented normally. The company also noted that its operations in Malaysia are safe and stable.
The total amount of Country Garden’s liabilities is almost $200 billion. Moody’s reports that the company currently exists in a space of enormous pressure, which is associated with the need to repay debts of $4.3 billion by the end of 2024.
The news that the developer missed payments on two dollar-denominated bonds in August shocked the market.
There are concerns that a potential possible default of a company that has learned from its own experience what the path from the top of leadership to the edge, beyond which a symbolically conditional pit of financial problems begins, may become a factor weakening the already unstable confidence on the part of investors. Official Beijing is trying to save the real estate sector, but a positive result of these efforts is not guaranteed. For the authorities, the restoration of this industry is a matter of particular importance, because without an acceptable state of the construction sphere, there will be no economic growth in China.
The Chinese real estate sector found itself in a difficult situation in 2020 when new rules were introduced to control the amount of money that large realtor firms can borrow. Evergrande, once China’s best-selling developer, has accumulated debts of more than $300 billion. The problems of this company have had an impact on the entire real estate sector. Some other construction firms have defaulted on their debts and have not completed construction projects across the country.
In addition to problems with the financial situation of developers, China has also faced challenges such as low economic growth, high youth unemployment, and rising local government debt. Also, activity at local factories has been declining for the fifth month in a row.
On August 10, Country Garden officially acknowledged that the current difficulties it has faced are the most difficult in the entire history of the company, which began in 1992. Then the firm also identified as negative factors influencing the brand’s situation the deterioration of sales dynamics and not the best refinancing conditions.
Against the background of the difficult situation in which the developer found himself, there was a suspension of trading in 11 onshore bonds of the company. In early August, Chinese state media reported that the firm would soon begin debt restructuring.
As we have reported earlier, China’s Evergrande Group Files for Bankruptcy in New York.