Country Garden Clears First Debt Hurdle via China Creditors' Vote

Chinese developer Country Garden has won its first battle against debt default, although a long and hard road lies ahead.

Sources said on Saturday the company, the country’s largest private developer, won approval from creditors to extend payments for an onshore private bond.

Country Garden was seeking approval to extend the maturity for a 3.9-billion yuan ($540 million) onshore private bond in a vote that ended on Friday night.

The news is a huge relief for the embattled developer, as well as foreign creditors and the crisis-hit property sector. One holder of its dollar bonds had warned that if the company could not extend its domestic debt, it would be unable to service external bondholders.

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China’s largest private property developer had proposed to repay the debt in instalments over three years instead of meeting its obligations by Saturday. The bond is not publicly traded.

The development buys time for the firm to avoid default in what will likely be a major relief for financial markets and the Chinese government, which has announced a raft of measures to support the indebted property sector.

Country Garden did not immediately respond to a request for comment. The sources asked not to be named as they were not authorised to speak to the media.

A default by Country Garden would have exacerbated the country’s real estate crisis, put more strain on its onshore lenders and further delayed the prospect of a recovery of the property market.

Until this year Country Garden was the largest Chinese developer by sales. The company was considered financially sound compared with peers like China Evergrande Group, which defaulted on its debt in 2021.

Over 3,100 projects across China

While Country Garden’s liabilities are only 59% of those at Evergrande, it has 3,103 projects across China, compared with about 800 for Evergrande – making the company matter to systemic stability while also fueling contagion fears as it shows signs of financial stress.

Country Garden’s total liabilities were about $194 billion by the end of June, unchanged from the end of 2022, based on its first-half financial results.

It faces 108.7 billion yuan ($14.9 billion) worth of debts due within 12 months, while its cash levels are around 101.1 billion yuan.

The developer’s financial woes became public last month after it missed two dollar-coupon payments totalling $22.5 million, raising fears that the country’s deepening property debt crisis would spill over to the broader financial sector.

China’s property sector, which accounts for roughly a quarter of the economy, has lurched from one crisis to another since 2021 after the authorities cracked down on developers’ debt-fulled building boom.

As Country Garden’s financial woes spiralled over the past month, Beijing has rolled out a string of support measures including cutting mortgage rates and removing some curbs on home purchases.

The authorities are set to take further action, including relaxing home-purchase restrictions as they scramble to tackle a deepening crisis in its massive debt-laden property sector.

Country Garden still faces another major challenge next week, when the grace period ends for last month’s missed coupon payments worth a total of $22.5 million on the two offshore dollar bonds.

The company also has dollar coupon payments on its other offshore bonds coming due each month for the rest of 2023. And it has onshore bond payments totaling 12.6 billion yuan by the end of the year, according to CreditSights.

No bailout yet for any private developer

Beijing has so far not directly bailed out any private Chinese developer despite some of them coming to the brink of collapse since the property crisis hit the economy in 2021, after a regulatory crackdown on developers’ accumulation of debts.

In the case of Evergrande, however, the provincial government in Guangdong, where the developer is based, did step in to help manage the fallout from its destabilising financial crisis in late 2021.

However, the outlook for Country Garden is worsening.

Moody’s slashed its credit ratings for the company by three notches to Ca from Caa1 on Thursday due to worries it could be on the brink of default. It said Country Garden was facing tight liquidity and recovery prospects for bondholders could be weak.