China’s Country Garden 'Hires Kroll For Liquidation Assessment'

China’s biggest real estate developer – and one of its most troubled – Country Garden has picked a top financial risk and advisory firm to carry out a liquidation analysis, sources have told Reuters.

News that Country Garden, which went into default last October, has selected Kroll for such a task suggests the private developer has realised it may have little chance of surviving Beijing’s dramatic restructuring of the massively indebted property sector, given its huge debt-load and the dark cloud over the real estate sector.

In late January, a Hong Kong court recently gave the green light for China Evergrande, once the country’s biggest building conglomerate, to be wound up.

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China Evergrande and its founder Hui Ka Yan were hit with large fines earlier this month after an investigation into the group’s affairs found its main real estate unit had grossly inflated sales revenue in the two years prior to it slumping into default.

And now an even bigger property giant is teetering. Analysts have said the collapse of Country Garden could have far more impact on China’s middle class because it has many more unfinished projects already sold to homebuyers.

A report by Nomura last August said Country Garden had about 1 million unfinished homes and 3,312 projects under construction.

Country Garden, which had total liabilities of 1.36 trillion yuan ($189 billion), including $11 billion of offshore debt, as of the end of June 2023, revealed in a regulatory filing to the Hong Kong Stock Exchange late last month that it had received a petition to liquidate the group for non-payment of a $205 million loan.

Reuters said three sources said the group had hired Kroll, ahead of a court hearing in mid-May as the embattled Chinese developer pushes ahead with its offshore debt-restructuring plan.

Kroll, the New York-headquartered financial advisory firm, is expected to conduct an independent business review of Country Garden before projecting a recovery rate for the developer’s creditors under a liquidation scenario, according to the sources with direct knowledge of the matter.

The sources could not be named because they were discussing confidential information. Country Garden and its advisor KPMG declined to comment. Kroll did not reply to Reuters’ queries on Wednesday.

Prior to that, Country Garden had appointed KPMG and law firm Sidley Austin as advisers to examine its capital structure and liquidity position and formulate what it called a “holistic” solution.