Chinese real estate giant loses nearly 7 billion USD, on the brink of bankruptcy

China’s largest private property developer Country Garden will face a major test of investor confidence on August 31, when creditors vote on a proposal to extend the maturity of its bonds.

The vote is expected to close before 10 p.m. Hong Kong time (around 9 p.m. Vietnam time), which will be the main hurdle for Country Garden to overcome as it tries to avoid default amid a growing financial crisis.

Country Garden on August 30 announced a loss of 48.9 billion yuan ($6.7 billion) in the first half of 2023 and warned of default risks.

Despite a 39% increase in revenue, the company still posted a loss due to falling sales prices and the value of assets under development, Country Garden said. The company has more than $150 billion in debt and missed two bond payments in August.

Country Garden said that if its financial results continue to deteriorate, it will be unable to repay its debts, leading to a risk of default. The Foshan-based company also cited “material uncertainties” that could affect its ability to continue as a going concern.

World - Chinese real estate — Ms. Yang Huiyan, Chairwoman of Country Garden. Photo: aastocks.com

The warnings underscore the serious impact of China’s property crisis. Once China’s largest property company by revenue, Country Garden is in a debt spiral that could be worse than rival China Evergrande Group, which has four times as many real estate projects.

Country Garden admitted that it failed to take timely measures to cope with the downturn, and failed to recognize the risks from its heavy reliance on the lower-end real estate market.

Country Garden has been negotiating with onshore creditors to extend a 3.9 billion yuan ($535.4 million) private bond due on September 2. If the company fails to meet the payment deadline, it could become the biggest Chinese real estate company to collapse since Evergrande’s bankruptcy in 2021.

Under the extension plan, Country Garden will repay the domestic private bonds in seven installments, ending in September 2026. The first three installments will be made this year.

The company is also seeking a 40-day extension on the bond repayment period, but has yet to receive approval from investors.

“Whether Country Garden can avoid default depends on additional financial support from regulators in the coming weeks. However, we see the chances of this happening decreasing,” Morgan Stanley analysts said .

Nguyen Tuyet (According to Bloomberg, The Guardian, Reuters)

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