Rows of abandoned luxury villas in Shenyang, China, March 31, 2023.
Jade Gao/AFP via Getty Images
Another Evergrande-like crisis is brewing in the Chinese property sector.
Country Garden is the latest developer to suspend its bond trading amid a wider liquidity crisis.
Shares in the embattled firm hit a record low Monday morning – fuelling a broad sell-off in property stocks.
China’s property sector has been dealt with another blow as shares in one of its largest developers hit an all-time low Monday morning, after it suspended trading in almost a dozen local bonds.
Country Garden Holdings – once China’s largest developer by sales – announced in a weekend release that it would be suspending trading in ten of its yuan-denominated bonds after missing two coupon payments worth a combined $22.5 million last week. The move adds to speculation that the firm will begin restructuring its debt with the help of financial advisers.
Shares in the troubled builder fell 18% on the Hong Kong Stock Exchange in Monday’s trading, as the 30-day grace period on its two unpaid coupons draws ever-closer. It closed at $0.80 HKD, down from $0.98 at opening bell.
News of Country Garden’s trading suspension fuelled a sell-off in the wider property index, raising concerns that the sector’s multi-year liquidity crisis is about to proliferate.
As the firm edges towards a potential default, the chances of restructuring increase, with investment bank CICC International Capital Corp. exploring options to extend the lifespan of its Panda bonds, which are closest to their maturity dates, according to Bloomberg.
Last Monday, ratings agency Moody’s downgraded the developer to B1, its negative outlook reflected in “uncertainties surrounding the company’s ability to stabilize its declining contracted sales and recover its funding access,” the report said. On August 10, they cut the rating further – down to Caa1.
Country Garden held about $200 billion of liabilities at the end of 2022, which equates to $194 billion now. It also controls over 3,000 housing projects and employs about 70,000 people at the end of last year.
It is one of the few remaining private developers still standing after a years-long downturn in the country’s property sector. Last month, Shimao Group defaulted announced two-year losses of $6.8 billion resulting from its 2021 default.
Meanwhile, Evergrande, now China’s most indebted developer, reported a whopping $81 billion two-year loss in July – a figure almost triple the GDP of Iceland. The firm’s collapse back in 2021 reverberated through global markets when it failed to repay its $300 billion debt pile – and in the two years that followed, this has had dire consequences for the nation’s property market.
Despite the Chinese government’s pledge to support the ailing property sector, no concrete intervention has yet been announced, and any rescue efforts could arrive too late for Country Garden.
China’s property sector is enormous – accounting for about around 30% of the country’s overall economy. Its headwinds include heavy debt burdens, sluggish demand for new property, and potential homebuyers prioritizing saving instead. This was a contributing factor in stunting second-quarter GDP growth, which came in at 6.3%, well below forecasts of up to 7.1%.
Country Garden and the CICC did not immediately respond to a comment request from Insider.