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China’s Country Garden on verge of payment deadline following two prior defaults, impacting economy


Sep 18, 2023

Struggling Chinese real estate developer, Country Garden, is facing a new liquidity challenge as it approaches a $15 million payment deadline for bond-related interest. The company narrowly avoided default on its last payment, but now must meet this new deadline. Country Garden, the top private developer in China, has been a source of concern for the real estate sector and has prompted the Chinese government to introduce support measures. Failure to make the $15 million payment by the mid-October grace period will result in the immediate demand for the principal and potential cross-default terms on other credits.

Country Garden’s financial situation has been worsened by weak property sales in China, leading to a significant decrease in its cash levels. The company is likely to struggle to meet its debt obligations, according to Sandra Chow, Asia Pacific research co-director at CreditSights. The company has debts totaling 108.7 billion yuan ($14.9 billion) due within the next year, with only 101 billion yuan ($13.9 billion) in cash as of June. Last month, the company warned of default risks if its financial performance continued to decline.

Despite its financial troubles, Country Garden managed to avoid default by obtaining approval from creditors for payment extensions on its onshore private placement bonds. This provided relief to both the company and the real estate sector in China. The company also missed coupon payments worth $22.5 million on its $2 bonds in August but transferred the funds before the grace period ended this month. Domestic bondholders agreed to extend repayments on seven other Country Garden bonds for three years.

While shares in Country Garden rose almost 1% in Hong Kong on Monday, many creditors believe that the company will need to restructure its offshore debt if it does not receive liquidity support soon. Some offshore creditors have already begun discussions with law firms Kobre & Kim and Ashurst, with Country Garden looking to settle its debts. The possibility of forming a creditor group to aid in the rebuilding process is also being considered.

By Editor

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