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China’s Real Estate Woes: Country Garden Faces Bond Payment Delays

China’s Leading Developer, Country Garden, Faces Financial Strain, Stirring Economic Concerns.

China’s premier private developer, Country Garden, is in discussions to postpone a private onshore bond payment, marking a first for the company. This decision comes on the heels of the firm’s suspension of trading in 11 onshore bonds, which resulted in its shares plummeting to an all-time low this past Monday.

Related article: China´s Real Estate Crisis Worsens As A Major Shanghai Developer Defaults

The financial turbulence surrounding Country Garden has sent ripples of unease throughout the markets. This has intensified the call for Beijing to bolster the faltering real estate sector, a move seen as crucial to restoring faith in an economy that’s showing signs of faltering.

Despite its previous reputation as a stable financial entity, Country Garden’s shares took a sharp 18.4% nosedive to HK$0.8 on Monday. This decline contributed to a 3.7% drop in the Hang Seng Mainland Properties Index. The company’s stock value has eroded by half this month alone.

The tremors from this situation were felt internationally. For instance, the UK’s FTSE 100, which is heavily influenced by exporters, saw a slight decline on Monday. The overarching concern is the potential impact on China’s economic resurgence and the burden of debt on its property market.

The challenges faced by Country Garden could potentially deter potential homebuyers and shake the confidence of financial institutions. The broader implication is that more private property firms might be on the brink, especially if timely financial backing isn’t provided.

Adding to the financial market’s unease, two publicly traded Chinese companies revealed they hadn’t received due payments from Zhongrong International Trust Co. This comes amidst an already tense environment, exacerbated by a downturn in the property sector.

The real estate sector, a linchpin in China’s economic machinery, has been grappling with declining sales, liquidity crunches, and a spate of developer defaults since the end of 2021. Notably, China Evergrande Group has been a focal point of this debt predicament.

Factors such as diminished overseas demand, lukewarm domestic spending, and ongoing issues in the property sector have hampered China’s efforts to rally post-COVID. This was further evidenced by recent lackluster economic data.

Country Garden’s offshore bonds have also seen a decline, with some trading as low as 6 cents on the dollar. However, there has been a slight uptick since.

According to Reuters, a knowledgeable insider revealed on Monday that the company has approached creditors with a proposal to extend the repayment of a 3.9 billion yuan onshore private bond, due on September 2, over a span of three years in seven segments.

Country Garden has refrained from commenting on the matter. However, over the weekend, the company announced its decision to halt trading in 11 of its onshore bonds, a move often interpreted by traders as a precursor to seeking repayment extensions.

In September, Country Garden might be on the hook for over 9 billion yuan (approximately $1.25 billion) in onshore bond repayments, as per Reuters’ estimates.

This suspension was preceded by a report from Chinese media outlet Yicai, which suggested that the company was on the path to debt restructuring. This came after the company defaulted on two dollar bond coupon payments, amounting to $22.5 million, due on August 6.

The company’s property management subsidiary, Country Garden Services, saw its shares drop by over 10%. Additionally, a services unit of Country Garden divested its majority stake in a Wuhan-based tech firm. The chief strategic officer of Country Garden Services also stepped down from the chairman’s role.

Dickie Wong, executive director at Kingston Securities, commented on the ongoing crisis, noting that the sector’s issues have been long-standing, eroding investor confidence and dampening property purchases.

Highlighting the gravity of the situation, Wong emphasized that the sector’s influence on the economy has reached a pivotal juncture. He advocated for regulatory interventions, such as interest rate reductions and adjustments to reserve ratios.

China’s economic growth has been tepid in the recent quarter, with both domestic and international demand waning. This has prompted leadership promises of policy reinforcements and led analysts to revise their annual growth projections downward.

In related news, state-owned China Jinmao reported an anticipated 80% drop in net profit for the first half of this year, attributing it to reduced profit margins in certain projects and a decline in land development revenue. Consequently, its shares in Hong Kong fell by 4.1% on Monday.

Other major private developers, Longfor Group and Seazen Group, have also felt the heat since Country Garden’s debt issues surfaced. Their shares decreased by 1.8% and 3.6% respectively on Monday.

In a bid to instill market trust, Longfor made an early transfer of 1.7 billion yuan for an onshore bond due this Thursday. The company also made an advanced repayment of HK$3.2 billion on a five-year syndicated loan, with plans to settle the remaining amount by year’s end.

Topics: Country Garden financial challenges, China real estate sector concerns, Global market reactions to Country Garden, Beijing’s support for real estate, Economic implications of bond payment delays, Country Garden’s Bond Delay

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