Country Garden: Chinese homebuilder warns it could default after posting $7 billion loss

Hong Kong/London
CNN
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Country Garden warned Wednesday that it could default on its massive debt as it reported a loss of 51.5 billion yuan ($7 billion) for the first six months of the year.

The company, which was the largest residential developer in China last year, said it was caught off guard by the depth and persistence of the real estate market slump, especially in small Chinese cities, and failed to respond quickly enough.

“The company deeply regrets the unsatisfactory performance,” the company said in a statement. filing To the Hong Kong Stock Exchange.

Country Garden confirmed that it had defaulted on interest payments to holders of some of its bonds earlier this month, and that “if the company’s financial performance continues to deteriorate in the future,” the group could default.

It added in the filing: “All of the above…indicate the existence of material uncertainties that may cast significant doubts about the Group’s ability to continue as a going concern.”

The troubled real estate giant is facing a liquidity crisis that some fear could spill over into the broader Chinese economy and even spill over abroad.

Foshan, Guangdong based company He said Earlier on Wednesday, it announced that it plans to issue HK$270 million ($34.4 million) worth of new shares to Kingboard Holdings, a Hong Kong-based laminate manufacturer, in lieu of a loan that was due to be repaid.

The announcement came on the same day as a major Chinese city, Guangzhou, Relaxing mortgage rules for home buyers in an effort to support the beleaguered real estate sector.

The company said on Monday that its $100 billion project in Malaysia, its largest overseas project, was “operating normally,” adding that its operations in the region were “safe and stable.” The announcement, along with China’s recent actions to support the sector, boosted shares of Hong Kong-based Country Garden for a while.

But the stock is still down 67% this year, and the company is under pressure.

Country Garden has nearly $200 billion in total commitments. And it is facing increasing pressure to pay down its debt — it has about 31 billion yuan ($4.3 billion) of bonds due until the end of 2024, according to Moody’s.

Earlier this month, the market was shocked by reports that the company had defaulted on a dollar-denominated bond. Last week, the company moved the deadline from Aug. 25 to Aug. 31 for bondholders to vote on a plan to extend a 3.9 billion yuan ($530 million) bond payment.

Investors are worried that the company’s debt default could deal another blow to already fragile investor confidence as Beijing tries to bail out the ailing sector, which is key to China’s economic growth.

On August 10, Country Garden admitted it was facing its “greatest difficulty” since its inception in 1992, citing declining sales and a difficult refinancing environment.

The news triggered a massive sell-off of the company’s securities, forcing it to briefly suspend trading in 11 of its domestic bonds. Chinese state media mentioned At the time the developer was expected to start the debt restructuring process soon.

On Wednesday, Guangzhou became the first major Chinese city to announce an easing of mortgage regulations aimed at encouraging home purchases.

Under the new rules, people who previously took out mortgages can be considered first-time homebuyers and enjoy preferential loans, according to a city government notice.

This move came days later Three Chinese regulators issued a joint statement allowing local governments to ease mortgage restrictions, as part of the central government’s efforts to revive buyer demand.

Among other efforts, housing and tax authorities jointly announced Friday that they will extend personal income tax cuts to people who buy new homes within one year after selling previous properties.