After losing billions, the struggling Chinese real estate group Country Garden is warning of a default on some bonds. “Should the group’s financial performance continue to deteriorate in the future, the group may not be able to meet the financial covenants of these loans,” the group said in Hong Kong. This could lead to a default of these bonds. There is also a risk that some of the company’s other bonds could be affected. Country Garden now wants to consider measures to pay off the remaining foreign debt, which is due by the end of June next year.
The entire Chinese real estate industry is in trouble as real estate prices fall due to the weakening economy and fresh loans become more expensive at the same time. The most prominent example of this is China Evergrande, the world’s most heavily indebted real estate company at the equivalent of 303 billion euros.
Debt restructuring is said to be in the works
“The company deeply regrets the unsatisfactory performance,” Country Garden management said. The loss amounted to 48.9 billion yuan (about 6.1 billion euros) in the first half of the year. The minus was not quite as high as feared – but it was still more than seven times as much as in the second half of 2022. Meanwhile, foreign creditors of Country Garden are apparently preparing for a possible debt restructuring of the real estate group. They had obtained legal advice from him, said lawyer John Han from the law firm Kobre & Kim. The options discussed include the formation of an interest group in order to have a better negotiating position with the group.
Country Garden is the largest private real estate developer in the People’s Republic to date and has specialized in properties in smaller towns. The company sits on the equivalent of 178 billion euros in debt. Three quarters of this sum comes from foreign donors. According to Country Garden, there are currently hardly any free funds for debt service because a large part of the money is in escrow accounts to pay construction companies for the completion of real estate. According to experts at investment bank Nomura, Country Garden currently has almost a million homes under construction. Her colleagues at the US bank JPMorgan put the cost of completing it at almost 40 billion euros. Separately, Country Garden announced a capital increase.
The sector accounts for a quarter of the economic output of the People’s Republic. In order to prevent the crisis from worsening, the state jumps into the breach. The metropolis of Guangzhou, for example, relaxed the rules for granting preferential loans to real estate buyers. Beijing, Shanghai and Shenzhen could follow suit, as could a dozen smaller major cities. According to insiders, state-owned banks will also lower interest rates on existing mortgages.