As the offshore loan deadline closes, talk of country garden defaults swirls

HONG KONG, Oct 18 (Reuters) – A Country Garden ( 2007.HK ) $15 million coupon payment deadline expired without word on payment, fueling expectations that China’s biggest private property developer has defaulted on its offshore debt as the country’s real estate woes deepen. .

As is standard in bond contracts, non-payment can trigger a cross-default on other bonds. The company has nearly $11 billion in offshore bonds and a default would set the stage for one of China’s largest corporate debt restructurings.

A bondholder of the tranche in question, who declined to discuss confidential information, said he had not received the coupon because the 30-day grace period had expired.

Country Garden on Wednesday reiterated that it expects to be unable to meet all of its offshore debt obligations and hopes to seek a “comprehensive” solution to its difficulties.

Its statement did not directly address the question of whether a default had occurred and company representatives declined to comment.

“If they don’t pay within the grace period, it defaults,” said Cedric Rimaud, an analyst at GimmeCredit, an independent corporate bond research firm, referring to Country Garden’s missed payment.

Other Chinese property developers have been plagued by liquidity problems since 2021, when the government introduced measures to curb the sector’s extremely high debt levels.

The industry accounts for a quarter of China’s economic activity and its lingering woes have dragged down the world’s second-largest economy, often roiling global financial markets.

Country Garden’s missed payments come amid an investigation into the chairman of embattled Pier China Evergrande ( 3333.HK ), which has also defaulted on loans and is at the center of the sector’s debt crisis.

Shares in Country Garden have lost 70% of their value this year, but were up 2.7% on Wednesday.

Its dollar bonds are now worth about 6 cents, compared with 70 cents at the start of the year, according to LSEG data, and bondholders expect the debt to be restructured.

“Country Garden Offshore USD bond prices speak to current expectations,” said Robert Simniak, co-founder of real estate Foresight, which publishes on Smartkarma.

A US asset manager who owns Country Garden’s dollar bonds added: “We are prepared to walk away with some losses, but I hope the restructuring process will be efficient and less painful compared to other companies like Evergrande.”

The property manager declined to be identified.

However, Country Garden is in better shape with its debt, having received some breathing room with three-year payment extensions for eight bonds worth 10.8 billion yuan ($1.5 billion).

China has taken several supportive measures in recent months to revive the property market, but private developers are still struggling to raise new capital, according to a CreditSides report published on Tuesday.

“As homebuyers remain biased towards government-linked developers, those privately-run developers who are yet to default may see an increasingly challenging prospect, squeezed by both insufficient contracted sales generation and inaccessibility to finance,” the report said.

China’s bleak asset market outlook could worsen the terms for offshore borrowers as it restructures debt.

Wednesday’s data showed property investment in China fell 9.1% in the first nine months of the year. Floor area sales fell 7.5%.

Nationwide new home prices for September will be released on Thursday. August data showed a 0.3% month-on-month drop, the fastest pace in 10 months.

According to JP Morgan, 40% of Chinese housing developers will default on their loan obligations by 2021. Those companies, mostly private, have issued about $110 billion worth of high-yield offshore bonds.

Hong Kong’s Hang Seng Mainland Properties Index (.HSMPI) is down 40% so far this year.

($1=7.3110 Chinese Yuan)

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