Country Garden, once viewed as a "model developer", now thinks it'll miss its foreign debt payments, two years after China's real estate crisis began.
In a filing to the Hong Kong Stock Exchange on Tuesday, the developer said that it had not made a payment due on a $60 million loan, denominated in Hong Kong dollars. Worse, Country Garden admitted that it “expects that it will not be able to meet all of its offshore debt payment obligations when due or within the relevant grace periods," including on its U.S. dollar-denominated debt.
The developer said it is engaging advisors to “evaluate the capital structure and liquidity of the Group and formulate a holistic solution."
Its shares fell over 10% in Tuesday trading in Hong Kong to hit $0.10. Shares are down over 70% for the year thus far.
Country Garden had largely been out of the spotlight of China's real estate crisis until earlier this year, when it nearly missed a $22.5 million interest payment, unsettling investors and reviving concerns about the country's property sector. As of mid-June, the developer had $178 billion in liabilities.
In its Tuesday filing, Country Garden said that sales have been under "remarkable pressure" since the start of 2023. The company reported sales of approximately $21.6 billion for the first nine months of the year, a 43.9% decrease compared to the same period last year. In September alone, the firm sold just $850 million worth of homes, an over 80% year-on-year decline.
Country Garden's problems are emblematic of a property crisis that has hammered the Chinese economy. Real estate comprises about 30% of China’s GDP, making it the single biggest contributor to the world’s second-largest economy.
The crisis arguably started when another giant developer, China Evergrande Group, missed its debt payments. The company defaulted on its dollar debt in late 2021, and has since embarked on a long process to restructure its debt. In late September, Evergrande admitted that Chinese law enforcement had placed its billionaire chairman, Hui Ka Yan, under police control.
Evergrande's debt restructuring process is also facing regulatory hurdles. Last month, Evergrande said it would be unable to issue new debt due to a probe into its key subsidiary Hengda Real Estate Group.
Time is running out for Evergrande. The company will face a Hong Kong court hearing on Oct. 30 which could force it into liquidation.
But Beijing may now be under some pressure to try to prop up the struggling real estate sector. In a bid to restore confidence, authorities in late August implemented a range of measures, including reducing down payments and cutting mortgage rates.
