Country Garden Holdings Co., one of China’s largest real estate developers, is facing the risk of default as some of its bondholders have not received coupon payments that were due on Monday. The company has a 30-day grace period to make the payments, but analysts warn that a default would have a worse impact on China’s housing market than Evergrande’s collapse.
Country Garden’s Debt Woes
Country Garden, which was founded by billionaire Yang Guoqiang and his family, has been struggling with high debt levels and tight liquidity amid China’s property slump. The company had $36.6 billion of total debt as of June 30, 2023, according to its interim report. Its net debt-to-equity ratio was 93.9%, higher than the industry average of 86.5%.
The company has been trying to reduce its debt burden by selling assets, cutting costs, and issuing new bonds. However, its efforts have been hampered by weak sales, regulatory restrictions, and rising borrowing costs. The company’s sales fell 8.7% year-on-year in the first half of 2023, while its gross profit margin dropped to 25.8% from 28.1% a year ago.
The company’s bonds have also been under pressure, as investors have lost confidence in its ability to repay its obligations. The company’s next bond to mature, a $500 million note due in November 2023, fell to 11 cents on the dollar on Tuesday, according to Bloomberg data. The company has about $2.4 billion of offshore bonds maturing in the next 12 months.
The Impact of a Potential Default
A potential default by Country Garden would have a more severe impact on China’s housing market than Evergrande’s collapse, according to Bloomberg Intelligence analyst Kristy Hung. She wrote in a report on Wednesday that Country Garden has four times as many projects as Evergrande, and that any debt crisis at Country Garden would significantly weaken buyer confidence on solvent private developers.
Country Garden is also one of the largest employers in China’s real estate sector, with about 200,000 employees and contractors as of December 31, 2022, according to its annual report. A default by Country Garden could trigger social unrest and job losses, adding to the economic and social challenges faced by the Chinese government.
A default by Country Garden could also have spillover effects on other sectors and markets, as the company has diversified into businesses such as hospitality, education, health care, agriculture, and robotics. The company also has exposure to overseas markets such as Malaysia, Australia, Indonesia, and Thailand.
The Outlook for Country Garden
Country Garden has not commented on whether it has made the coupon payments or not, nor has it issued any statement on its financial situation. The company still has time to avoid a default if it can secure enough funds to pay its creditors within the grace period.
However, the outlook for Country Garden remains uncertain, as the company faces multiple headwinds and challenges in the near future. The company will have to cope with slowing sales, rising costs, regulatory pressures, and market volatility, while maintaining its cash flow and credit ratings.
The company will also have to deal with the potential legal actions and reputational damage that may arise from a default or restructuring. The company may face lawsuits from bondholders, suppliers, contractors, customers, and employees who may seek to recover their losses or claims.
The company may also face scrutiny from regulators and authorities who may impose penalties or sanctions on the company for violating rules or laws. The company may also lose its licenses or permits to operate in certain markets or regions.
