China’s largest property developer failed to repay a loan and expects to miss more international debt obligations. Country Garden has moved closer to a default that could ripple through the financial system of the world’s second-largest economy.
Country Garden
(ticker: 2007.H.K.) said Tuesday that it failed to repay a Hong Kong-dollar-denominated loan worth some $60 million, and that it “expects that it will not be able to meet all of its offshore payment obligations.” This is essentially a warning that the company expects to default.
Country Garden, once held up as a model amid distress in China’s sprawling real estate industry, said it has engaged financial advisors “to evaluate the capital structure and liquidity of the group” and that it will hold talks with offshore creditors.
It’s a sign that the company may soon require a debt restructuring, a similar fate that befell
Evergrande Group
(3333.H.K.), whose descent into debt distress two years ago—an ongoing saga—underscored risks in China’s sprawling property sector.
Shares in Country Garden—already down more than 70% this year as the company’s debt woes escalated—lost a further 10.7% in Hong Kong trading on Tuesday.
Historically an engine of growth for China, the real estate industry’s entwined role with the country’s financial system has raised concerns that indebted property developers represent a spillover risk for the Chinese economy, already in the midst of a slowdown. Country Garden had liabilities exceeding $187 billion as of the end of June.
But the underwhelming performance of the Chinese economy, too, has exacerbated problems for the likes of Country Garden, which said Tuesday that sales fell 44% year-over-year in the first nine months of 2023.
While there remain reasons to be bullish on China, hopes of meaningful government stimulus—which received another jolt in the arm on Tuesday after a Bloomberg report, citing anonymous sources, that more was on the way—have so far fallen flat.
The latest development from Country Garden is yet another reminder that China’s property woes are unlikely to be resolved soon, and could be a persistent headwind for a Chinese economy already grappling with meeting growth goals.
Write to Jack Denton at [email protected]
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