Country Garden Signal Default as China's Property Woes Deepen

Chinese developer Country Garden Holdings Co offered the strongest indication yet that it’s set for a maiden default and debt restructuring, in the latest sign that authorities’ rescue efforts are far from enough to stop the nation’s property crisis from worsening.

China’s former top builder warned in a stock exchange filing on Tuesday that it will not be able to meet all of its future offshore payment obligations, including dollar bonds. Such non-payment may lead to relevant creditors demanding acceleration of payment or pursuing enforcement action, it added. 

Country Garden’s warning came after it managed to dodge its first public bond payment failure and succeeded in rescheduling local debt in recent months, shifting investors’ focus from increasingly inevitable delinquencies towards a likely massive debt overhaul. With its peer China Evergrande Group facing rising risk of liquidation amid uncertainties about its own restructuring, the developer’s deepening woes underscore the need for Beijing to adopt stronger measures to support a key growth engine as homes sales keep slumping.

Country Garden’s latest statement “may pressure the offshore bondholders to approve any upcoming restructuring proposal”, said Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group. “The company is clearly still in a liquidity crunch with many unfinished projects to complete and limited access to new financing.”

In a reflection of how Country Garden’s debt woes are affecting prospective homebuyers’ confidence in the builder, the company said on Tuesday that September contracted sales plunged 81% from a year earlier. Declines have been accelerating in recent months, with August’s 72% drop following decreases in excess of 50% in June and July.

Subdued home sales are further squeezing the breathing room of Chinese distressed developers like Country Garden despite that the central government have rolled out a slew of measures, including an easing of mortgage restrictions at the end of August triggered a spurt of home sales in larger cities, to prop up the property market this year. Read more!