China’s Country Garden says ‘major uncertainties’ over bond payments

China’s troubled property giant Country Garden said Wednesday there were “major uncertainties” over payments on its bonds, with fears swirling about the health of the country’s heavily indebted real estate sector.

Country Garden — listed among the world’s 500 biggest companies by Forbes — has warned of losses worth billions of dollars and is staring at the possibility of a default.

Like its troubled competitor Evergrande, any collapse of Country Garden would have catastrophic repercussions for the Chinese financial system and economy.

“There are currently major uncertainties in the redemption of corporate bonds,” the company said in a filing to the Shanghai stock exchange on Wednesday.

The privately owned firm was long deemed financially stable but it failed to make two bond payments last week. After a 30-day grace period, it risks defaulting in September.

Country Garden estimated its debt at some 1.15 trillion yuan ($159 billion) at the end of 2022, and said at the weekend it would suspend trading of onshore bonds from Monday.

Additional liabilities mean other estimates of its overall debt are as high as 1.4 trillion yuan ($193 billion), according to Bloomberg.

Adding to the pressure, 31 billion yuan ($4.27 billion) in the firm’s bonds are set to mature in 2024, according to rating agency Moody’s, which downgraded its rating for the group last Thursday to “Caa2”, indicating “very high credit risk”.

Housing reform in China during the late 1990s unleashed a boom in the real estate sector, spurred by social norms that consider owning a property a prerequisite for marriage.

But the massive debt accrued by the industry’s biggest players has been perceived by Beijing in recent years as an unacceptable risk for China’s financial system and overall economic health.

To reduce the sector’s indebtedness, authorities have gradually tightened conditions for developers’ access to credit since 2020, drying up sources of financing for firms already in debt.

A wave of defaults followed — notably that of Evergrande — which undermined the confidence of potential buyers and reverberated through the industry.

The downturn in the once-thriving sector has occurred against a backdrop of a general economic slowdown in China.

Country Garden is particularly susceptible to weak demand because it focuses on the lower end of the property market, launching ambitious projects in secondary cities where local buyers wield less purchasing power.

Source: AFP