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Country Garden, China’s top-selling private real estate developer, posted a record loss of $48.9 billion in the first half of the year.
The six-month results, published on Wednesday, represent the biggest losses ever for the group, which until recently was considered safer than many of its rivals. They also highlight the bleak outlook for an industry that typically accounts for more than a quarter of China’s economic activity.
The company’s problems are part of a two-year real estate liquidity crisis that began with developer China Evergrande’s default in 2021 and shows signs of spilling over into China’s investment industry.
As the broader crisis continues, Country Garden’s losses have widened from Rmb6.7 billion in the second half of 2022. In contrast to this week’s results, the company had posted a profit of Rmb612 million in the first six months of last year.
The Guangdong-based group said its revenue rose 39 percent to RMB 226 billion in the first half of this year.
But it added that it had “striked a balance between sales volume and selling price in some of its real estate projects” to “ensure timely delivery of completed properties” – an apparent acknowledgment that it had cut prices to shift units.
Concerns about Country Garden’s finances increased this month as coupon payments on international bonds were missed. On Tuesday, the project developer asked Chinese creditors for a 40-day grace period for a renminbi bond due next week.
Country Garden said it had liabilities of around RMB 1.36 trillion as of the end of the first half of 2023. It said it would “consider introducing various debt management measures to address” what it described as “gradual liquidity pressures.”
Beijing cracked down on Chinese developers’ borrowing at the start of the coronavirus pandemic but has been forced to ease its crackdown as the country struggles to revive its economy.
In a move reflecting pressure on authorities, the southern cities of Guangzhou and Shenzhen on Wednesday relaxed mortgage loan conditions for first-time home buyers.
Caps on bank mortgage loans were originally part of a broader approach to combat overheated property prices. Since then, a prolonged slowdown has impacted property prices as sales collapsed and there were delays in the construction of new homes.
The government has held off on any rescue operations, but its approach to Country Garden is being closely watched.
Chinese developers face a wall of $38 billion in renminbi and dollar bond payments over the next four months, according to data from Dealogic.
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“Developer defaults are sure to continue as almost all private developers face cash flow pressures that are unlikely to ease any time soon,” said Bruce Pang, chief Greater China economist at JLL. “Any policy support that comes will take time to impact cash flow, home sales and housing starts.”
Country Garden had planned to raise $300 million through a stock offering in late July, but abruptly canceled the deal at the last minute.
The developer also announced plans on Wednesday to issue HK$270 million ($34 million) in new shares in Hong Kong at a 15 percent discount to Tuesday’s closing price, with all the money raised going toward repaying existing loans should.
Country Garden shares rose 5.7 percent in Hong Kong on Thursday morning following the company’s first-half results. The stock is down two-thirds year to date, reflecting a loss of more than $7 billion in market capitalization.