Country Garden, one of China’s largest property developers, saw its shares plunge to a new record low on Monday, after it suspended trading of 11 of its onshore bonds due to its worsening debt situation. The company, which has been struggling to repay its creditors amid a slump in the real estate sector, missed payments of two dollar bond coupons due on Aug. 6 totalling $22.5 million. The news sparked fears that the company was heading for a debt restructuring, adding to the uncertainty and volatility in the market.
Country Garden’s Hong Kong-listed shares dropped more than 15% to HK$0.83 in morning trading, dragging down the Hang Seng Mainland Properties Index which fell 4.6%. The company’s offshore bonds also suffered, with some trading at the lower end of 6 cents on the dollar. The company has a total debt of about $40 billion, of which $8 billion is in offshore bonds.
No signs of relief from Beijing for property sector
Country Garden’s troubles are emblematic of the broader challenges facing China’s property sector, which has been a core pillar of the country’s economy for decades. The sector has been hit hard by a series of regulatory measures aimed at curbing speculation, debt and environmental impact, as well as by the COVID-19 pandemic and the Evergrande crisis. The result has been a sharp decline in sales, cash flow and profitability for many developers, leading to a wave of defaults and downgrades.
The market has been hoping for some signs of support from Beijing, such as easing credit conditions, relaxing home purchase restrictions or providing bailouts for distressed developers. However, so far there has been no indication that the authorities are willing to intervene or loosen their grip on the sector. Analysts say that Beijing is determined to push ahead with its long-term goal of deleveraging and reforming the property industry, even at the cost of short-term pain and instability.
Country Garden faces legal action from bondholders
Country Garden is not only facing financial pressure, but also legal action from its bondholders. According to Bloomberg, a group of investors holding more than 25% of the company’s 8.125% notes due 2023 have hired law firm Kirkland & Ellis to advise them on their options. The group is reportedly considering accelerating the bonds, which means demanding immediate repayment of the principal and interest.
The bondholders are also seeking more information from Country Garden about its financial situation and its plans to deal with its debt problems. The company has not provided any update on its missed coupon payments or its bond trading suspension since last week. The lack of transparency and communication has added to the frustration and anxiety of the investors, who fear that they may not recover their money.