China’s Country Garden Holdings, one of China’s largest private-sector property developers, is late on delivering coupon payments on its debt, sparking fears the company could soon default. The company failed to pay coupon payments due Monday. Country Garden Holdings owes $10.5 million of interest on a dollar bond that matures in 2026 and $12 million on a note due in 2030. That puts the firm, which had 1.4 trillion yuan ($199 billion) of total liabilities at the end of last year, on course for its first public default if it doesn’t make the payments within a 30-day grace period.
A default at Country Garden Holdings could be worse than China Evergrande Group’s default in late 2021. Country Garden Holdings, formerly China’s largest private-sector developer by sales, is the builder of more than 3,000 housing projects in smaller Chinese cities and employed about 70,000 people at the end of last year. It has so far avoided the liquidity crunch that has hammered China’s property developers, but falling home sales and soaring refinancing costs put the company in danger of being caught up in the property debt crisis.
According to preliminary data from the China Real Estate Information Corp, home sales by China’s 100 biggest real estate developers in July fell by -33.1% y/y. That was the second decline in a row after four months of gains and dampens speculation of a lasting rebound in China’s housing market. China’s housing market relies heavily on the presales model, where apartments are often bought 18 months to two years before completion. Bloomberg Intelligence said, “Any default by Country Garden Holdings would impact China’s housing market more than Evergrande’s collapse as Country Garden has four times as many projects.”
While China’s central bank previously attributed Evergrande’s crisis to mismanagement, the potential default of Country Garden looks to be liquidity driven. Country Garden recently acknowledged “periodic liquidity stress,” and its heavier presence in China’s real estate market makes its liquidity troubles more alarming. Country Garden Holdings, the largest developer by contracted sales between 2017 and 2022, has 3,121 pending projects compared to Evergrande’s 778 projects. Bloomberg Intelligence warns that “any debt crisis at Country Garden will have a far-reaching impact on China’s housing market sentiment and could significantly weaken buyer confidence in solvent private developers.”
The prolonged slump in China’s property market has now spread to other developers that were once considered immune from the contagion of the debt crisis. Central China Real Estate Ltd., a state-backed developer, has repeatedly used the 30-day grace periods to buy time more time to make coupon payments, and creditors of a unit of Dalian Wanda Group and state-backed Sino-Ocean Group Holding received coupons at the last minute. Nomura International HK Ltd said developers using grace periods for coupon payments “is a bad sign that reflects tight liquidity.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
