Country Garden incurs a loss of $7 billion as the real estate crisis in China worsens

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Country Garden, China’s largest private real estate developer by sales, posted a record loss of 48.9 billion renminbi ($6.7 billion) in the first half of the year as it struggles to survive its liquidity crunch. real estate sector in the country.

The six-month results released on Wednesday mark the highest ever losses for the group, which until recently was considered a safer than many of its peers. They also highlight the bleak outlook for an industry normally responsible for more than a quarter of economic activity in China.

The company’s troubles are part of a two-year-old real estate liquidity crisis that began with developer China Evergrande defaulting on a payment in 2021 and showed signs of spilling over into the Chinese investment industry.

As the broader crisis dragged on, Country Garden’s losses increased from Rmb6.7bn in the second half of 2022. In contrast to this week’s results, it posted a profit of Rmb612m for the first six months of last year.

The group, which is headquartered in Guangdong, said its revenue in the first half of this year increased by 39 percent to RMB226 billion.

But it added that it had “balanced sales volume and sale price on some of its real estate projects” in order to “ensure accurate delivery of finished properties” – an apparent admission that it had lowered prices to convert units.

Concerns about Country Garden’s financial condition grew this month when it defaulted on coupon payments on international bonds. On Tuesday, the developer asked Chinese creditors for a 40-day grace period on renminbi bonds due next week.

Country Garden said it had liabilities of about Rmb1.36tn as of the end of the first half of 2023. It said it would “consider adopting various debt management measures to solve” what it called a “phase liquidity squeeze”.

Beijing cracked down on borrowing by Chinese developers early in the coronavirus pandemic, but has had to soften its approach as the country struggles to reinvigorate its economy.

In a move reflecting pressure on authorities, the southern cities of Guangzhou and Shenzhen eased mortgage lending terms for first-home buyers on Wednesday.

The caps on bank mortgage lending were originally part of a broader approach designed to tackle soaring home prices. Since then, a prolonged slowdown has affected housing prices amid collapsing sales and delays in the construction of new apartments.

The government has stopped carrying out any bailouts, but its approach to Country Garden is being watched closely.

Chinese developers face a wall of $38 billion in renminbi and dollar bond payments due over the next four months, according to data from Dealogic.

“Developer defaults are sure to continue as almost all private developers face cash flow pressures that won’t go away anytime soon,” said Bruce Pang, JLL’s chief economist for Greater China. “Any political support that comes in will take time to trickle down to cash flow, home sales and new construction starts.”

Country Garden had planned to raise $300m from a stock offering in late July, but abruptly canceled the deal at the last minute.

The developer also announced plans on Wednesday to issue HK$270 million (US$34 million) worth of new shares in Hong Kong at a 15 percent discount to Tuesday’s closing price, with all funds raised going toward repaying existing loans.