Country Garden Debt Woes Intensify Chinese Real Estate Crisis

Country Garden, once China’s largest homebuilder, is buckling under the pressure of the escalating Chinese real estate crisis, signaling its inability to repay a loan and expecting to default on a debt load of around $187 billion.

This announcement, which came via the Hong Kong Stock Exchange, marks one of the most significant casualties in the country’s deepening property market turmoil, following in the footsteps of Evergrande’s bankruptcy, the New York Times reported.

Over the past few months, Country Garden has been struggling to avert a complete collapse, resorting to asset sales and negotiations with creditors to restructure debts or delay payments. However, the relentless decline in apartment sales has limited the firm’s cash flow to less than it needs to meet debt obligations.

For the sixth consecutive month, presales of unfinished apartments — a crucial gauge of future revenue — plummeted to 6.17 billion yuan ($862 million) in September, an 81 percent drop from the previous year. Over the first nine months of 2023, presales were down by 44 percent.

The firm cited unfavorable market conditions as a hindrance to securing sufficient cash in the short-term to enhance its liquidity. It admitted that there had been no significant industry-wide improvement in property sales, and unloading assets to boost liquidity remained fraught with “significant uncertainty.”

Country Garden’s heavy exposure to China’s less-developed third- and fourth-tier cities has intensified its financial woes, as these areas have experienced more pronounced real estate slowdowns than major cities.

Despite being considered a fiscally responsible Chinese real estate firm over the past two years, Country Garden’s financial pressure escalated as the economy struggled to recover following the easing of Covid restrictions, and the property market continued to languish.

The firm had previously managed to make a vital interest payment to avoid default. Still, it acknowledged the need to repay nearly $15 billion in debt over the next year, including bonds, notes and bank loans.

With a scarcity of funding options and a sharp decline in sales, analysts don’t expect the firm’s liquidity to improve much in the near term. Country Garden anticipates missing overseas debt payments, even after local creditors agreed to delay the maturity of nine corporate bonds worth approximately $2 billion.

The firm’s top operational priority now is ensuring the delivery of unfinished apartments, a plan emphasized by the Chinese government. As of the end of September, Country Garden reported the completion of 420,000 units in 2023. To navigate its financial troubles, the company has enlisted the services of China International Capital and Houlihan Lokey, an investment bank specialized in debt restructuring.

— Sam Lounsberry