China’s Country Garden Considers Debt Restructuring Amidst Property Sector Crisis

China’s property sector continues to face challenges as developers grapple with mounting debt obligations. Country Garden, one of China’s leading property developers, is reportedly considering a restructuring of its offshore debt, according to local media reports. Meanwhile, concerns are growing among bondholders of China Evergrande Group, another embattled developer, as its debt plans face obstacles.

Country Garden, which missed two dollar interest payments last month, has two coupons totaling $66.8 million due on Monday. Media outlet Cailianshe has suggested that the company may announce a restructuring soon. However, Country Garden has not provided any official comment on the matter or confirmed whether it has made any payments.

With $10.96 billion in offshore bonds and 42.4 billion yuan ($5.81 billion) in non-yuan loans, Country Garden’s potential default could lead to the need for debt restructuring and even liquidation by creditors. The upcoming test for the developer lies in its ability to pay a $15 million September coupon by October 17, failing which its entire offshore debt could be deemed in default.

China’s property sector has been grappling with a debt crisis since 2021, with numerous private property developers defaulting on debt obligations, leaving many housing projects unfinished. As confidence in the housing and capital markets wanes, liquidity for developers has been severely impacted.

China Evergrande Group, at the center of the country’s debt crisis, recently announced that its offshore debt restructuring plan failed to meet regulatory requirements. The company’s billionaire founder is also under investigation for unspecified crimes. Bondholders of Evergrande have expressed surprise at the lack of communication and documentation from the company, urging it to seek resolution from regulators to proceed with the restructuring. However, concerns remain that Evergrande may face liquidation at the next winding up hearing on October 30, 2023.

The potential collapse of Evergrande could have far-reaching consequences for China’s economy, as the company has hundreds of thousands of unfinished homes and $300 billion worth of liabilities in China alone. In response, the Chinese government has implemented various support measures to revive the property sector, which accounts for a significant portion of the country’s economy. However, analysts believe that additional measures may be necessary.

In the midst of these developments, market observers are closely watching whether Country Garden can avoid default by making last-minute payments. In September, the company received approval from its onshore creditors to extend yuan bond payments. It also made coupon payments on the offshore markets during the grace period. However, Country Garden has yet to pay a $15 million coupon due on September 17 and another $40 million coupon due on September 27, both of which have 30-day grace periods.

The stock prices of both Country Garden and Evergrande Group have been affected by the uncertainty surrounding their debt situations. Country Garden’s shares fell over 6% on Monday, while Evergrande Group’s shares tumbled 11%. The potential impact on the property sector is reflected in the 1.9% decline of the Hang Seng Mainland Properties Index.

Additionally, China Evergrande New Energy Vehicle Group announced the halt of a share sale plan with U.S.-listed NWTN due to “significant uncertainties” related to the Evergrande group. The stock, which had been suspended since September 28, experienced volatile trading, fluctuating between a 10% fall and a 9% gain.

As the situation unfolds, market participants are closely monitoring the actions of authorities, as a disorderly collapse of Evergrande could have broader implications for the Chinese economy.