China’s Country Garden seeks to delay onshore bond repayment, fanning market fears

Country Garden, China’s largest private developer, is seeking to delay payment on a private onshore bond for the first time, a source said, after suspending trading in 11 onshore bonds, sending its shares plunging to a record low on Monday. Reuters report.

Anxiety spread through markets following the worrying news from Country Garden (2007.HK), putting Beijing under mounting pressure to deliver support for the ailing real estate sector in order to shore up confidence in a stuttering economy.

Once considered a more financially sound developer, Country Garden shares dived 18.4% to HK$0.8 on Monday, dragging down the Hang Seng Mainland Properties Index (.HSMPI) which dropped 3.7%. The stock has lost 50% so far this month.

Some offshore markets, including the United Kingdom’s exporter-heavy FTSE 100, edged lower on Monday, as worries mounted over China’s economic recovery and its debt-laden property market.

Country Garden’s difficulties could have a chilling effect on homebuyers and financial institutions, with more private property companies close to a tipping point if financial support does not materialise soon.

Two Chinese listed companies said over the weekend that they had not received payment on maturing investment products from Zhongrong International Trust Co, adding to the stress in a financial market already roiled by a property sector downturn.

A core pillar of China’s economy, the real estate sector has suffered tumbling sales, tight liquidity and a series of developer defaults since late 2021, with China Evergrande Group (3333.HK) at the centre of the debt crisis.

Weak overseas demand, tepid domestic consumption and persistent problems in the property sector have been major factors in the economy’s struggles to mount a solid post-COVID recovery, as shown by another set of weak data released last week.

Country Garden’s offshore bonds also eased, with a few trading at the lower end of 6 cents on the dollar earlier. Most have since firmed slightly.

The firm proposed to creditors to extend repayment for an onshore private bond due Sept. 2 , with an outstanding of 3.9 billion yuan, by three years in seven instalments, a source with direct knowledge said on Monday.

Country Garden declined to comment. In separate filings during the weekend, the developer said it would suspend trading in 11 of its onshore bonds from Monday, in a move that traders said usually signals plans to seek repayment extensions.

In September alone, Country Garden may need to repay more than 9 billion yuan ($1.25 billion) worth of onshore bonds, according to Reuters calculation.

The suspension of its onshore bonds followed a report by Chinese media Yicai on Friday that the company was heading for a debt restructuring, after it missed payments of two dollar bond coupons due on Aug. 6 totalling $22.5 million.

Shares of its property management unit Country Garden Services (6098.HK) fell more than 10%.

According to company registry portal Qichacha, a services unit of Country Garden offloaded its 51% stake in a Wuhan-based network technology company, while chief strategic officer of Country Garden Services also resigned from the firm’s chairman.

Country Garden Services did not immediately respond to request for comment.

Its woes are adding to spillover concerns across a property market already grappling with weak buyer demand.

“The problems in the sector have been brewing for a long time, it wiped off the wealth effect among investors and no one wanted to buy property now,” said Dickie Wong, executive director at Kingston Securities.

Wong said the sector’s impact on the economy has reached a “critical moment” and that regulators should implement more policies including further cutting interest rates and reserve ratios.

China’s economy grew at a frail pace in the second quarter as demand weakened at home and abroad, prompting top leaders to promise further policy support and analysts to downgrade their growth forecasts for the year.

State-owned China Jinmao (0817.HK) said in a filing on Sunday it expected to post a 80% decline in net profit in the first half of this year, due to a drop in gross profit margin in some projects and decrease in land development revenue.

Its Hong Kong-listed shares slumped 4.1% on Monday.

Shares and bonds of Longfor Group (0960.HK) and Seazen Group (1030.HK), two remaining larger private developers still considered financially healthy, have been under pressure since the debt troubles in Country Garden came to light. Their shares dropped 1.8% and 3.6% respectively on Monday.

In an effort to boost market confidence, Longfor has transferred funds worth 1.7 billion yuan ahead of the repayment date for an onshore bond maturing on Thursday, a source with direct knowledge said.

The Beijing-based developer recently also repaid early another HK$3.2 billion of a HK$15.3 billion five-year syndicated loan due in January 2024, making early repayments totalling HK$7.2 billion so far, the person said, adding the firm planned to repay the remaining amount by the end of this year.

Cailianshe and Debtwire were the first to report the onshore and offshore repayments, respectively. Longfor declined to comment.

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