Country Garden, one of China’s largest construction companies, announced on Tuesday that it may not be able to repay all of its loans at a time when China’s real estate sector faces a severe liquidity crisis.
The construction company, until recently considered financially healthy, has been hit in recent months by a real estate crisis in China that now threatens the survival of several companies in the sector.
A default would be catastrophic for this key sector of the Chinese economy, which accounts for a quarter of the country’s gross domestic product (GDP).
The company, which was already technically at risk of default in September, eventually managed to repay $22.5 million (about 20.9 million euros) on two bonds issued on international markets (“offshore”) within a 30-day period . extension.
The group, which was then negotiating new repayment terms for several loans with creditors, was due to repay the obligation on Monday but was unable to make payments amounting to HK$470 million (€56.7 million).
The group now has a grace period of 30 days to avoid default.
However, Country Garden admitted that it “cannot meet all payments on its obligations to foreign investors.” “A default could lead to interested creditors demanding acceleration” of their debt payments or initiating legal proceedings, the group warned.
The company asked investors for patience and said it was “evaluating the current challenges” and said it had hired financial advisers “to evaluate the capital structure and liquidity” of subsidiaries.
“The company intends to continue cooperation and dialogue with all creditors in order to reach a realistic solution as quickly as possible,” the statement said.
A possible default would cause turmoil in markets and worsen the crisis in the Chinese real estate sector and the slowdown of the Chinese economy.
At the end of 2022, Country Garden’s debt was estimated at €180 billion. The company had 147.9 billion yuan (18.6 billion euros) in cash at the end of June, mostly earmarked for finishing houses that owners had paid for before they were built.
Country Garden “does not have sufficient treasury sources” to cover future payments, financial rating agency Moody’s said last month.
The agency downgraded the group’s rating by three levels to “Ca”, which is synonymous with “default with some hope of recovery.”
However, in 2021, Chinese regulators limited the sector’s access to bank loans, which triggered a liquidity crisis. One of the country’s largest construction companies, Evergrande Group, could not resist. Dozens of other groups are negotiating debt restructuring.
Country Garden has four times more development land than the Evergrande group, whose failure to comply in 2021 sparked protests from buyers, some of whom subsequently refused to pay monthly payments.
On Tuesday, Country Garden said its “operational priority (…) is to ensure delivery” of the homes. Any stop in construction could lead to social instability. China already has a large number of unfinished buildings.
Another over-indebted Chinese construction company, Kaisa Group, admitted at a hearing in Hong Kong today that it is “liquidity insolvent” after failing to repay its debts in 2021.
Author: Lusa
Source: CM Jornal
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