All eyes on Country Garden's cash flow as troubled firm set to report loss

China Overseas Land & Investment

29/08/2023 09:14

By Clare Jim
       HONG KONG, Aug 29 (Reuters) - Just how cash-strapped
embattled Country Garden Holdings  2007.HK  is will be the focus
when China's largest private property developer is due to report
its first-half results on Wednesday.
    The liquidity stress in the company became public this month
after it missed two dollar coupon payments and sought to extend
an onshore private bond repayment, deepening contagion fears in
China's struggling property sector, and the wider economy.
    Country Garden's total liabilities stood at about $194
billion at the end of 2022. It has already flagged a net loss of
up to 55 billion yuan ($7.55 billion) in the first six months, a
staggering slide from the 6.7 billion yuan loss it posted in the
second half of 2022 and from the net profit of 1.9 billion yuan
it posted a year earlier.
    Like its peers, the company, which was China's largest
property developer by sales volumes until this year, has been
hurt by a drop in margins as property sales and the value of the
homes themselves plummeted in China's slowing economy. Lower
sales, coupled with tighter access to fresh funding in recent
years, worsened its cash squeeze.
    An analyst with a foreign investment bank said investors
were looking for details on short-term debt and new bank loans
to better understand Country Garden's cashflow.
    Because most of its funds are locked up in the escrow
accounts of project contractors to ensure the delivery of homes
over the next two years, there is little cash left for repaying
debt at the group level, a company official said.
    About 60% of the company's total onshore bonds mature over
the remaining months of the year, and if the company is able to
extend its repayment deadlines, it could be able to improve its
operations and cashflow, the official added. They declined to be
named because they were not authorised to speak to media.
    JP Morgan has estimated it would cost about 316 billion yuan
to finish all the company's projects under construction,
including both sold and unsold flats.
        Country Garden declined to comment ahead of its
earnings. The company will also not hold meetings with analysts
and the media after the earnings announcement, the first time it
skips these conferences in many years.
        On Tuesday, Country Garden proposed adding a 40-day
grace period for the repayment of a 3.9 billion yuan private
onshore bond due Saturday. Creditors will have until Thursday to
approve a proposal to extend the full repayment by three years. 
    China International Capital Corporation (CICC) has been
hired as a financial adviser to Country Garden and the developer
was expected to kick off a restructuring process soon, Chinese
news outlet Yicai has reported.    
    Last Friday, the developer sold its 26.7% stake in Guangzhou
Asian Games City for 1.3 billion yuan to state-owned peer China
Overseas Land & Investment  0688.HK . The company, however, said
on Monday it would go ahead with a $100-billion project in
Malaysia.
($1 = 7.2843 Chinese yuan renminbi)

 (Reporting by Clare Jim; Editing by Miral Fahmy)
 ((clare.jim@thomsonreuters.com;))