Struggling property developer Country Garden said on Tuesday it was unable to repay a loan and expected to miss upcoming foreign debt payments due to declining sales caused by China’s worsening property crisis.
The announcement on the Hong Kong Stock Exchange is effectively a declaration by Country Garden, once China’s largest homebuilder, that it is likely to default on about $187 billion in liabilities. Country Garden is one of the biggest causes of China’s imploding real estate market, which has driven Evergrande, another giant real estate developer, into bankruptcy.
Country Garden has struggled in recent months to avert collapse by selling assets to raise cash and negotiating with creditors to restructure liabilities or defer payments. But the company’s ongoing struggle to sell new homes has choked the cash flow needed to keep debt payments under control.
Country Garden said pre-sales of unfinished apartments, a key indicator of future revenue, fell for the sixth straight day in September to 6.17 billion yuan, or $862 million. That was 81 percent less than the previous year. In the first nine months of 2023, pre-sales fell 44 percent compared to the previous year.
“The prevailing market conditions have made it difficult for the group to raise sufficient cash to improve its liquidity position within a short period of time,” the company said in its statement. “As a result, the group’s liquidity position remains under significant pressure.”
It added that there had been “no material, industry-wide improvement in property sales” and that Country Garden faced “significant uncertainty” as it sought to offload assets to improve its liquidity.
While other real estate developers have failed to repay their debts over the past two years after years of excessive borrowing and aggressive construction, Country Garden appeared to be an outlier, a rare example of a financially responsible Chinese real estate company. But as the economy struggled to recover after Beijing lifted its restrictive Covid policies and the slump in the country’s real estate market continued, Country Garden’s financial pressures intensified.
Country Garden was particularly hurt by its heavy exposure to China’s less developed third- and fourth-tier cities, where the real estate downturn was more pronounced.
When Country Garden announced last month that it had managed to make a closely watched interest payment to avoid default, the company said it still owed nearly $15 billion of debt over the next 12 months of bonds, debentures and bank debts have to be repaid and other bonds.
On Tuesday, the company said it expected to be unable to meet foreign debt payments despite local creditors agreeing to postpone the maturity of nine corporate bonds with a total debt value of about $2 billion.
Jeff Zhang, Chinese real estate analyst at Morningstar, said the announcement was no surprise given the scarcity of financing options available to Country Garden and the sharp decline in sales.
“We do not expect the company’s liquidity to improve significantly in the near term as home buyers and financial institutions may remain on the sidelines,” Mr Zhang said.
Country Garden said it had failed to make a payment due on a $60 million Hong Kong dollar-denominated loan and that it would not be able to repay all of its foreign debts as they matured or even within a grace period settle.
The company said “its top operational priority” was to ensure the delivery of unfinished apartments, a priority for the Chinese government. The company said it had completed 420,000 units in 2023 as of the end of September.
It said it had hired China International Capital and Houlihan Lokey, an investment bank specializing in debt restructuring, as joint financial advisors.