Country Garden, China’s debt-laden developer, meets payment deadline

Country Garden, China’s largest real estate developer, informed creditors that it had made a late payment of interest, avoiding an immediate default on its debt and keeping the company financially viable for the time being.

Last month, the company defaulted on interest payments totaling $22.5 million on bonds sold in US dollars. It had a 30-day grace period to make the payment or default. The grace period ended this week.

Country Garden has informed bondholders that it has made the payment within the grace period, a person close to the company said Tuesday.

The late payment highlights the financial pressures facing Country Garden, which has been China’s best-selling homebuilder for the past six years. The company is scrambling to raise cash to deal with liabilities that totaled about $187 billion at the end of June. Last week, after reporting a loss of $7.1 billion in the first half of 2023, it warned that there were “material uncertainties that may cast significant doubt” on its ability to avoid bankruptcy.

It has concluded a deal to sell a minority stake in a real estate development project, and has agreed to issue new shares at a discount to a creditor who owes hundreds of millions of dollars to Country Garden. The company also reached an agreement with holders of its $537 million yuan-denominated bonds, which matured last week, to delay repayment of the debt for three years.

The company said it must pay off nearly $15 billion in debt over the next 12 months in the form of bonds, securities, bank loans and other loans. Country Garden’s debt due over the next year exceeds its current amount of $13.9 billion in cash and cash equivalents.

The cash crunch at Country Garden, once considered a model player in China’s real estate industry, is the latest sign of the country’s deepening real estate crisis, which has already left dozens of homebuilders in default, unable to repay their debts.

Country Garden had managed to avoid a mounting liquidity crisis until recently, when a slowdown in the Chinese economy led to a sudden, sharp decline in the company’s real estate sales. Unfinished apartment sales, an important indicator of future revenues, fell more than 50% in June and July, double the rate of decline in the previous five months.

There may be no quick fix to Country Garden’s financial predicament. China Evergrande, once considered a rival to Country Garden for the title of China’s largest homebuilder, defaulted on its debt in late 2021, and continued to restructure its debt and negotiate with creditors for nearly two years before declaring bankruptcy last month.

Country Garden said last week it still owes about $200 million to a subsidiary of Hong Kong-based Kingboard Holdings, a materials and chemicals maker with a real estate division. She added that the amount will be paid in installments, with the final payment to be made in December.