Country Garden Holdings Co., one of the most indebted property developers in the world, has not made any public statement about its overdue bond interest payment that could trigger its first default. The company owes $15.4 million of interest on a dollar bond that has a 30-day grace period ending on Oct. 17-18. A holder of the note said they had not received the payment as of Wednesday morning. Country Garden did not respond to requests for comment.
The company, whose $187 billion of total liabilities make it one of the world’s most indebted builders, must pay the coupon by the end of the grace period or a default can be called. Country Garden has not clarified which day marks the official end of the grace period, creating uncertainty among bondholders. The initial deadline of Sept. 17 fell on a Sunday, making the effective deadline the following day.
Country Garden warns of offshore payment difficulties
The silence from Country Garden comes after it warned last week that it did not expect to be able to meet all its future offshore payment obligations. The company also said that it had not made a due payment totaling HK$470 million ($60 million) “under certain of its indebtedness,” without specifying. This was the strongest indication yet that the developer was poised for a default and restructuring.
Country Garden has $9.9 billion of dollar notes outstanding and would be one of China’s biggest-ever restructurings. Its dollar bonds are trading at deeply distressed levels of around 5 cents, indicating low expectations for debt recovery.
Country Garden faces liquidity crisis amid China’s property slump
Country Garden is one of the many Chinese developers that are struggling with a liquidity crunch amid China’s property slump. The sector has been hit by tighter regulations, slower sales, and higher borrowing costs. The crisis has been exacerbated by the default of China Evergrande Group, the country’s largest developer by debt, which has sent shock waves across Chinese markets.
Country Garden has several times the number of projects of Evergrande and is a symbol of China’s broader property debt crisis. The company has been trying to ease its cash flow pressure by selling assets, cutting prices, and extending local bond maturities. However, these measures have not been enough to restore investor confidence and avoid a default.
Country Garden’s default could have wider implications for China’s economy
A default by Country Garden could have wider implications for China’s economy, as it is one of the largest employers and taxpayers in the country. The company employs more than 200,000 people and contributes to more than 600 cities’ fiscal revenues. A default could also affect its suppliers, contractors, and customers, as well as other developers that rely on its financing platform.
A default could also test China’s willingness and ability to support its troubled property sector, which accounts for about a quarter of the country’s gross domestic product. So far, China has adopted a cautious approach to dealing with the debt crisis, avoiding direct bailouts and allowing market forces to play a bigger role. However, some analysts have warned that a disorderly collapse of the sector could pose systemic risks to China’s financial stability and social stability.
