Country Garden shares rose after bondholders agreed to extend debt repayments

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CNN
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Investors in Chinese real estate giant Country Garden breathed a sigh of relief after it won approval from local creditors to delay payments on bonds due and avoid the risk of default – at least for a few days.

It was the company’s first debt extension since its liquidity crisis became public last month It offers a temporary respite for China’s real estate industry, which has been beset by fears that Country Garden’s debt problems will spill over into peers and affect the economy.

The company did not respond to a request for comment from CNN.

But the company is not in trouble. You failed to pay interest on a dollar bill last month and the 30-day grace period on those missed payments expires this week. Failure to pay these creditors may result in default.

On Monday, Country Garden shares rose 15% in Hong Kong after multiple reports that bondholders had approved a plan for the company to extend payment of 3.9 billion yuan ($540 million) in bonds sold to investors in China that matured on Saturday. It posted its biggest daily gain in nine months, but it’s still down 62% so far this year.

Hong Kong Hang Seng

(HSI) The index advanced 2.5% and posted its best day in more than a month, led by a rally in the real estate sector. Stocks also received a boost from a fresh set of stimulus measures announced last Thursday to boost the real estate market. The Hong Kong Stock Exchange was closed last Friday due to the typhoon.

According to the agreement with creditors, which was reported by several state-owned media on Saturday, Country Garden will now be able to extend the payment of the principal of the $540 million outstanding until 2026. But the interest on the bonds must be paid as it was originally. scheduled.

The bond was issued in September 2016, with an issue value of 5.83 billion yuan ($800 million) and a coupon rate of 5.65%, according to an offer document seen by CNN.

More than 56 percent of affected bondholders, including major state-owned banks and private equity funds, voted in favor of the agreement, according to state-owned data. Southern Media Group.

Analysts from Huatai Securities wrote in a research note on Sunday that the deal “means that nearly 70% of the principal payment of the bond will be deferred to three years, which can significantly reduce pressure on Country Garden and improve its ability to service its debt in the long term.” “.

They added that this bond in particular contains the largest outstanding balance that the company needs to pay off among its internal debts in the coming year.

But Yip Jun Rong, a market analyst at IG, said previous lessons learned from developer China Evergrande’s default in 2021 suggested any extension could only be a “near-term reprieve”, with no final solution to its problems. her debts. Still “headwinds” for investors.

Country Garden, which was China’s largest residential developer by sales last year, is facing a cash crunch.

Last week, it reported a record loss of $7 billion for the first six months of the year, citing the ongoing sluggish real estate market and difficult refinancing environment. It confirmed that it had defaulted on payments to holders of some of its overseas bonds last month and could default if the company’s financial conditions continued to deteriorate.

The company has total liabilities of nearly $200 billion and is facing mounting pressure to pay off its debts.

It has about 31 billion yuan ($4.3 billion) of bonds maturing until the end of 2024, according to Moody’s.