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Markets
Country Garden’s Losses Fan Fears on China Property Market
Concern is mounting the prominent developer will default
Firm says it will likely report loss of up to $7.6 billion
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What Country Garden’s Debt Woes Mean to China Property Market
By Bloomberg News
2023年8月11日 at 上午11:21 [GMT+8]
Updated on 2023年8月11日 at 下午6:18 [GMT+8]
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Less than two years after China Evergrande Group’s default sent shockwaves around the
world, an even larger Chinese developer is on the brink.
Country Garden Holdings Co.’s bonds and shares have plunged this week after bondholders
failed to receive coupon payments of two dollar notes by an initial deadline, raising concern
it will be the next giant to default. The company is considering extending some soon-to-
mature yuan notes, said people familiar with the matter.
Late on Thursday, the company revealed the depth of its funding challenges by saying it
expects to post a net loss of 45 billion yuan to 55 billion yuan ($7.6 billion) for the first half of
2023. That compares with earnings of 1.91 billion yuan a year earlier.
Country Garden’s financial struggles are confirming investors’ worst fears about the nation’s
vast property market, which has resumed a downturn after a brief first-quarter rebound.
Home sales tumbled the most in a year in July, making it harder for real estate firms to get
cash needed to alleviate the credit crisis. Failure by Country Garden to pay its debts would
pummel fragile investor sentiment just as Beijing seeks to revive the troubled property
market.
“Country Garden may have willingness to pay its debts, but it is too cash-strapped,” said
Monica Hsiao, founder and chief investment officer of Triada Capital. “Short of a positive
policy surprise, restructuring is likely only a matter of time.”
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The company will take more powerful and effective measures to ensure home delivery and
address periodic liquidity stress, Chair Yang Huiyan and President Mo Bin said in a
WeChat statement to investors and clients on Friday. The developer will “make sure it
doesn’t lie flat” and will “think of every possible way to rescue itself” through sales, tapping
into assets and enlisting support from shareholders, the statement said.
Investors are pricing in a worst-case scenario. A Country Garden dollar bond due January has
fallen 15.4 cents to 8 cents this week, according to data compiled by Bloomberg. In
December, it was trading at 75 cents. The firm’s debt was downgraded three notches
Thursday by Moody’s Investors Service to Caa1 from B1.
The company’s shares fell as much as 14% Friday before closing below HK$1 for the first time
ever. It has tumbled 63% this year, the worst performer on Hong Kong’s Hang Seng Index.
The firm didn’t respond to requests for comment by Bloomberg.
Headquartered in the southern city of Foshan in Guangdong province, Country Garden was
China’s largest developer by contracted sales from 2017 — when it took the top spot from
Evergrande — through 2022. The company dropped to sixth place this year as its sales
slumped. The firm focused on building housing developments in lower-tier cities, which have
been harder hit by the slowdown than first-tier cities such as Beijing and Shanghai.
“Due to the recent deterioration of sales and refinancing environment, the available funds in
the book of the company have been continuously reduced, resulting in a phased liquidity
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pressure,” Country Garden said in Thursday’s statement.
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Total Liabilities
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Country Garden has the largest pool of outstanding dollar bonds among China’s biggest
property firms, excluding defaulters, with some $9.9 billion outstanding, Bloomberg-
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compiled data show. Its total liabilities amounted to 1.4 trillion yuan at the end of last year.
The company will join a slew of defaulters such as Evergrande if it doesn’t make its missed
payments within a 30-day grace period.
Representatives of CICC told some Country Garden noteholders that its bond-underwriting
team has been engaged to explore options for the builder’s yuan-note maturities, according
to people who were involved in the private conversations. Country Garden has a 3.9 billion
yuan bond due Sept. 2.
“Any default would impact China’s housing market more than Evergrande’s collapse as
Country Garden has four times as many projects,” Bloomberg Intelligence analyst Kristy
Hung wrote in a report Wednesday. “Any debt crisis at Country Garden will have a far-
reaching impact on China’s housing market sentiment and could significantly weaken buyer
confidence on solvent private developers.”
Read more: Country Garden Is in Danger of a Default Rivaling Evergrande
The prolonged slump in China’s property sector has brought previously sound companies to
their knees, with firms such as Central China Real Estate Ltd., a state-backed developer,
repeatedly using grace periods to buy time before stopping payments. In July, creditors of a
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unit of Dalian Wanda Group Co. and state-backed Sino-Ocean Group Holding Ltd. received
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coupons at the last minute.
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Growing concern over Country Garden has weighed on the broader junk dollar bond market.
Average prices of the nation’s high-yield US currency notes fell to 66.5 cents on Thursday, the
lowest since early December, according to a Bloomberg index.
Revive Demand
Regulators across China’s government have been seeking to revive demand in the property
industry, which makes up about a fifth of China’s gross domestic product. The sector is
caught in a vicious cycle where failing developers put homebuyers off purchases, which then
crimps cash flow of companies.
Last week, the central bank vowed to increase funding support for the private sector. That
came after the Communist Party’s Politburo — its top decision-making body — in July signaled
a shift toward looser policies for the property market.
“Collapse of another major private developer wouldn’t help with restoring confidence
among prospective homebuyers,” JPMorgan Chase & Co. analyst Frank Pan wrote in a report
dated Wednesday. “This could cast more doubts on effectiveness of policy tools to stabilize
the housing market. Ultimately, the weaker SOE-backed developers that so far have retained
access to unsecured funding onshore could face drags due to the negative backdrop.”
China’s securities watchdog held a meeting on the real estate market on Friday, underscoring
growing urgency among regulators to deal with a worsening housing crisis. The China
Securities Regulatory Commission convened with some property developers and financial
institutions virtually, people familiar with the matter said. Country Garden was not among
those invited, one of the people said.
Country Garden is chaired by billionaire Yang, whose fortune has shrunk by almost $29
billion since its peak in June 2021, leaving her with a net worth of $5.3 billion, according to
the Bloomberg Billionaires Index.
Read more: Country Garden Chair Loses More Wealth Than Any Billionaire
In a move that spooked the market, Yang last month transferred a substantial part of her
personal stake in Country Garden Services Holdings Co., which she also chairs, to a charity
foundation controlled by her sister. UBS Group AG analysts said the timing was “unusual.”
Days later, the property manager brought forward the payment date of its 2022 dividends
and special dividends.
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Yang has given “strong support” to Country Garden since its listing, the firm said in the Hong
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Kong exchange filing Thursday night. Together with family members this totals about
HK$38.6 billion ($4.9 billion) in loans, increases in shareholding, bond purchases and scrip
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dividends, it said, without specifying how much of the support came recently.
Read more: Country Garden Billionaire Bags Big Payouts as Default Looms
Yang’s father Yeung Kwok Keung co-founded Country Garden in 1992 in the southern Chinese
city of Foshan, and transferred a controlling stake to her in 2005 after she joined the
company as his personal assistant to learn the ropes and eventually succeed him.
The developer grew rapidly over several decades as the nation’s housing market boomed,
making a name for itself in the Guangdong province bordering Hong Kong with the slogan to
“get yourself a five-star home.”
— With Pearl Liu, Jackie Cai, Emma Dong, Venus Feng, Alice Huang, Shuiyu Jing, and John Cheng
(Updates to add details from second paragraph.)
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