Hong Kong
CNN
—
Travel over the Evergrande. A new symbol of China’s protracted real estate crisis has emerged. country garden.
The financial industry group, which determines credit events, reported on Thursday that it had ruled that the real estate company had suffered a “payment default” that occurred on October 18th. Note It is posted on the website of the Credit Derivatives Determination Committee.
This judgment follows another report: bloomberg news And that financial times It was announced this week that the once largest homebuilder in the country had defaulted on its international bonds for the first time, failing to make payments within the grace period that expired last week.
Country Garden did not respond to requests for comment by phone or email. Citigroup, the trustee with authority to enforce the terms of the bonds, reportedly declined to comment.
The $190 billion in debt developer had avoided default several times in the last month. However, sustained weakness in China’s real estate market and a difficult refinancing environment hampered its ability to raise enough funds to repay $15 billion of debt due by June 2024. The company warned investors earlier this month that a default was possible.
The company is now headed for debt restructuring, possibly facing a nasty financial collapse that would be another shock to China’s turbulent economy.
Here’s what you need to know about the rise and fall of country gardens and the future of China’s once red-hot real estate sector.
Until last year, country garden was China’s largest real estate development company, specializing in residential real estate.
The Hong Kong-listed company, based in Foshan, Guangdong province, has developed 3,000 projects across the country and transformed more than 1,400 rural towns into cities.
The group also develops commercial properties such as hotels, parking lots and retail stores, but has expanded significantly into other areas such as robotics and agricultural services.
The company is also responsible for a large amount of employment in China, employing around 300,000 people, according to its most recent annual report.
But the once-perfect-looking company has recently struggled with cash. Apartment sales in September were down 81% compared to the same month last year. The developer reported a record loss of $7 billion in the first half of 2023.
Country Garden’s problems are reminiscent of those of Evergrande, a once-mighty Chinese developer that defaulted on its debt in 2021. Evergrande filed for bankruptcy in the United States in August after posting $81 billion in losses over the past two years.
Confidence in China’s real estate sector has been shaken since Evergrande’s collapse, but concerns were reignited when Country Garden’s liquidity crisis surfaced in August.
At that time, reports surfaced that the company had defaulted on interest payments on its $2 bond, drawing attention to the company’s overall debt problem.
October 10th, said It added that the company had defaulted on payments of HK$470 million ($60 million) on maturing notes. They may ask for it,” he added. ”
Investors have been bracing for a Country Garden default for months, as real estate accounts for an estimated 25% to 30% of China’s GDP. There is a possibility that it will bounce back to become the world’s second largest economy.
Hong Kong’s Country Garden stock became a penny stock this year. In August, it was removed from the city’s representative Hang Seng Index.
The company is helmed by Yang Huiyan, one of China’s richest women. She recently poured more of her money into her struggling business, and her fortune, along with her stock price, plummeted.
Recent estimates suggest that China has an oversupply of apartments, enough to house its entire population of 1.4 billion, and there is no end in sight to the crisis.
The real estate market remains a major drag on China’s economy, and will have an impact on global growth, the International Monetary Fund (IMF) has announced. said last week.
New home prices fell in September, the third consecutive month of decline, despite efforts by the Chinese government to strengthen the sector, according to data released by the National Bureau of Statistics (NBS) last Thursday.
The sector was plunged into crisis more than two years ago following a government-led crackdown on developer borrowing. The Chinese government has launched a number of stimulus measures to revive growth, including lowering mortgage rates and removing restrictions on home purchases in urban areas.
IMF Asia and Pacific Director Krishna Srinivasan said at a press conference last week that China needs to have a “comprehensive strategy” for real estate, including ensuring all pre-financed housing is built. He said that it would be possible. In China, most new homes are sold before construction.
“The developer has a problem and needs to be resolved,” he said. “Until that’s done, it’s going to affect our confidence.”
