Chinese developer Country Garden disclosed on Wednesday that a liquidation petition has been lodged against it due to non-payment of a $205 million loan.
This development casts a shadow over its debt restructuring efforts and undermines Beijing’s initiatives to bolster trust in the property market.
In a regulatory filing to the Hong Kong Stock Exchange, Country Garden stated its firm opposition to the petition, which was initiated by Ever Credit Limited, a subsidiary of Hong Kong-listed Kingboard Holdings.
A court hearing has been scheduled for May 17, while Kingboard has yet to respond to Reuters’ request for comment. Following the filing, Country Garden’s shares plummeted over 12% on Wednesday, contrasting with the marginal 0.2% increase in the benchmark Hang Seng Index.
The petition’s emergence is poised to reignite worries among homebuyers and creditors regarding the debt crisis in China’s property sector, occurring at a juncture when Beijing is striving to instill confidence in an industry pivotal to a quarter of China’s GDP.
A potential liquidation of Country Garden would further compound the real estate crisis, adding pressure on its domestic lenders and potentially stalling the recovery not only in the property market but also in the broader Chinese economy.
This petition surfaces just a month after China Evergrande Group, the world’s most indebted property developer with liabilities exceeding $300 billion, was directed to undergo liquidation by a Hong Kong court.
Evergrande is now confronted with a complex restructuring process, anticipated by some investors to extend over a decade. China’s property sector, a cornerstone of the world’s second-largest economy, has been grappling with successive crises since 2021, following regulatory actions targeting debt-driven construction that triggered a liquidity crunch.
Subsequently, numerous developers have defaulted on repayments, prompting many to initiate or contemplate debt restructuring endeavors to circumvent bankruptcy or liquidation proceedings.
While China’s major cities witnessed a slowdown in the month-on-month decline of new home prices in January, with some experiencing stabilization, the nationwide downward trajectory persists despite Beijing’s endeavors to stimulate demand.
Radical Actions
Country Garden’s ongoing debt restructuring efforts, which gained traction in recent weeks following the default on its $11 billion offshore debt, risk encountering obstacles due to the liquidation petition. This development may deter other creditors from engaging in settlement discussions.
To navigate these challenges, Country Garden has enlisted KPMG and law firm Sidley Austin to assess its capital structure and liquidity position, with the aim of devising a comprehensive solution.
Last October, the company missed a $15 million bond coupon repayment, prompting the formation of ad hoc bondholder groups comprising international creditors.
It remains unclear whether Country Garden has initiated discussions with these creditors.
As of June 2023, the developer’s total liabilities stood at 1.36 trillion yuan ($188.9 billion), nearly equivalent to its total assets of 1.43 trillion yuan.
Expressing frustration, a Country Garden dollar bond investor criticized the company for prolonged indecision and frequent changes in advisors, suggesting that such delays prompt impatience among stakeholders, leading to a preference for liquidation.
In response, Country Garden affirmed its commitment to actively engage with offshore creditors regarding its restructuring plan, aiming to disclose terms to the market promptly.
The company reassured that the actions of a single creditor would not substantially impact its ability to fulfill building commitments, maintain normal operations, or execute the overall restructuring of overseas debts.
Notably, investment holding firm Kingboard took legal action against Country Garden in October through its unit Ever Credit, seeking repayment of HK$1.6 billion ($204.5 million).
Country Garden’s management forewarned earlier this year of a persistently weak property market in 2024 and anticipated encountering further “severe” challenges.
To bolster liquidity, the company has intensified its overseas asset divestment, recently selling its stake in its final Australian project and listing a residential development in East London for sale.
