HONG KONG/BEIJING (Reuters) – China’s Country Garden made interest payments on a U.S. dollar bond hours before the grace period deadline, a person close to the company said, stepping back from the brink of default for the second time in four years. days and bring some relief to the real estate sector, which has been affected by the crisis in the country.
China’s largest private real estate developer (2007.HK) failed to pay coupons on bonds with a total value of $22.5 million due on August 6, exacerbating concerns about how much cash they have left and keeping markets on edge throughout the bond’s grace periods. which is 30 days.
Although the amount was modest, the failure to repay would have undermined the fragile hope in financial markets that China’s stimulus policy had begun to stabilize the economy and the ailing real estate market.
Bondholders and lawyers said it would also have raised the prospect of defaults on another dollar bond as well as calls from creditors to speed up payments, while adding to fears it could spill over into the banking system of the world’s second-largest economy.
Country Garden also offered on Tuesday to extend the payment of eight domestic bonds worth 10.8 billion yuan ($1.48 billion) by three years, according to people familiar with the matter and documents seen by Reuters.
Those bonds, issued by Country Garden and another unit, were to mature and be floatable — an option given to bondholders to sell the bond back to the borrower on a set date — in 2023 and 2024, documents sent to internal creditors show.
Country Garden did not respond to a request for comment.
People familiar with the matter declined to be identified because they are not authorized to speak to the media.
“Country Garden is trying hard to honor debt obligations, but whether that can continue will depend on the effectiveness of this round of stimulus and regulatory easing,” said Gary Ng, Natixis chief economist for Asia Pacific.
The latest government stimulus measures over the past few days have included lowering existing mortgage interest rates and preferential loans for first home purchases in major cities, but many analysts say more support is needed to stabilize the real estate sector, restore consumer confidence and sow the seeds of growth. Ultimate recovery.
faltering economy
The monetary pressure on Country Garden highlights the fragile state of China’s real estate sector, which accounts for nearly a quarter of the economy and has deteriorated since the government’s crackdown on excessive leverage began in 2021.
Adding insult to injury is the lackluster post-pandemic economic recovery.
A general view of a construction site for apartment buildings by Chinese developer Country Garden in Tianjin, China, August 18, 2023. REUTERS/Tingshu Wang Obtain licensing rights
A survey of the private sector showed today, Tuesday, that service sector activity grew at its slowest pace in eight months in August, as weak demand continued to affect the economy and stimulus measures failed to significantly revive consumption.
Global stock markets fell on Tuesday as weak services data renewed concerns about the health of the Chinese economy, although factory surveys hinted at some signs of stabilization.
“With weak domestic demand and declining house prices in smaller Chinese cities in particular, there remain concerns about the fragility of the property sector,” said Susanna Streeter, Head of Finance and Markets at Hargreaves Lansdowne, UK.
“Stimulus efforts to increase mortgage lending are welcome, but it is likely that a much larger package of support will be needed to restore more confidence in the sector and put exposed real estate firms on a firmer footing.”
Dodge, duck, backtrack, and dive
Some Country Garden dollar bonds added a couple of points to their prices after news of Tuesday’s payments — a sign that the bond was trading with accrued interest, or with expectations of coupon payments, traders said.
However, prices remained at faltering levels, ranging between 11 and 15 cents to the dollar.
Country Garden’s share price ended down 1%, after falling as much as 5% earlier in the day. The mainland Hang Seng Real Estate Index (.HSMPI) and the China CSI 300 Real Estate Index (.CSI000952) each lost more than 2%.
The interest payments for overseas bonds came after Country Garden on Friday won approval from local creditors to extend the maturity of 3.9 billion yuan ($536 million) of special bonds.
Country Garden has never defaulted on any debt obligation, either at home or abroad. However, it indicated the risk of default if its financial performance continues to deteriorate after posting a record loss in the first half of the year.
Data from researcher CreditSights showed the developer had about $162 million in overseas bond interest payments due during the rest of the year.
Ting Ming, chief credit strategist at ANZ, said Country Garden’s internal debt extension deal “may have given a template” for how the company could negotiate new payment plans with both internal and external creditors.
“Country Garden’s three-year maturity extension looks better than restructuring plans by most other ailing developers,” Meng said.
“But the key issue is whether the plan can be implemented smoothly, which can only be achieved if China can reverse the downward trend in its real estate market,” she added.
(Reporting by Xie Yu in Hong Kong, Xuyan Wang in Beijing, Jason Xue in Shanghai, and Siddharth S. in Bengaluru – Reporting by Mohamed for the Arabic Bulletin) Writing by Sumit Chatterjee. Editing by Christopher Cushing and Kim Coghill
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