18th September 2023 – (Hong Kong) Chinese property developer Country Garden faces another critical liquidity test as it approaches the deadline to pay US$15 million in interest linked to an offshore bond on Monday. This comes after narrowly avoiding default twice earlier this month.
As the country’s top private developer, Country Garden’s financial struggles have exacerbated concerns within the property sector and led Beijing to introduce a series of support measures. The company will have a 30-day grace period to make the interest payment before being considered in default.
If Country Garden fails to meet the payment within the grace period, the principal amount will become immediately due, and any failure to service the debt will trigger cross-default terms, according to Sandra Chow, co-head of Asia-Pacific research at CreditSights.
Chow expressed doubts about Country Garden’s ability to fulfill its debt obligations due to its dwindling cash reserves, especially at a time when property sales in the second-largest economy remain weak.
No immediate response was received from Country Garden in relation to its latest debt repayment obligation.
In the previous month, Country Garden issued a warning about the risk of default if its financial performance continues to deteriorate. The company has approximately 108.7 billion yuan (US$14.9 billion) of debt due within a year, but its cash holdings amounted to only around 101 billion yuan as of June.
The developer managed to avert default by obtaining approval from its creditors to extend payments for an onshore private bond, providing significant relief for both the embattled Chinese developer and the crisis-hit property sector.
In August, Country Garden missed coupon payments totaling US$22.5 million related to two dollar bonds but managed to transfer the funds before the grace period expired earlier this month, thereby avoiding default.
Furthermore, onshore bondholders agreed last week to extend repayments for seven other Country Garden bonds by three years.
Shares of Country Garden, one of the few large Chinese developers that have not defaulted on their debt obligations, were trading up nearly 1% in Hong Kong, while the broader market experienced a 0.9% decline.
Many creditors believe that Country Garden may need to restructure its offshore debt if it does not receive liquidity support in the near future.
Certain offshore creditors of Country Garden have initiated discussions with New York-based law firm Kobre & Kim LLP and London-based Ashurst, exploring the possibility of forming groups in the event that the property developer seeks to restructure its debt.