Country Garden – Chinese developer with further problems

Debt-ridden Chinese real estate giant Country Garden said early this morning that it does not expect to repay all of its overseas payment obligations on time, approaching a potential insolvency.

Country Garden Problems

Country Garden is one of the largest developers in China, with a debt of 2022 trillion yuan ($1,43 billion) by the end of 196. Its cash flow problems have raised fears it could collapse, with repercussions for China's economy, which is already suffering from record high youth unemployment, weakening consumption and a broader real estate crisis.

Will it work this time too?

Country Garden, which was technically at risk of default in September, paid off $30 million in interest on its loans last month within a 22,5-day grace period. He then negotiated with creditors to reschedule several repayments, with several more deadlines looming in the coming weeks.

Today, the company said it had missed a payment of HK$470 million ($60 million). The developer is entitled to a 30-day grace period to avoid any potential default. However, in a statement filed with the Hong Kong stock exchange, the company said that:

"expects that it will not be able to meet all of its payment obligations abroad when they fall due or within applicable grace periods".

“Such failure to repay may result in the relevant creditors of the company requesting the acceleration of repayment of debt owed to them or in enforcement action.” – warned the company.

She promised an elaboration "a comprehensive solution in a fair and equitable manner" in terms of repayment of its debt obligations. For this purpose, the company hired financial advisors "to assess capital structure and liquidity" its subsidiaries.

“The company intends to continue to cooperate and engage in dialogue with all creditors to reach a workable resolution as quickly as possible.” – stated.

Then she asked "for creditors' patience", trying "assess current challenges".

Read: The Chinese real estate market - everything you need to know about it

Crisis on the Chinese real estate market

Many of China's leading developers have recently come under increasing financial pressure, with their astronomical debt levels bringing to the fore concerns of bankruptcy in a sector already battered by the coronavirus pandemic and the broader economic slowdown in China.

Last month Moody's agency downgraded Country Garden's credit rating, indicating that its liabilities were "highly speculative" and carried a high risk of default.

Country Garden has four times as many projects as its rival Evergrande, which failed to meet its obligations in 2021 and last year caused protests and months of strikes due to the closure of construction sites.

Any suspension of construction activities poses a risk of social instability in China, where homeowners often pay for the property before groundwork begins.

As with Evergrande, which has more than $300 billion in debt, any collapse of Country Garden would have devastating consequences for China's financial system and economy as a whole.