Analysis: Country Garden faces heat from liquidation suit to get cracking on debt revamp talks

Kingboard Holdings

03/03/2024 23:00

(Repeats story that ran on Friday evening, with no change to
text)
    By Marc Jones, Xie Yu and Scott Murdoch
       LONDON/HONG KONG, March 1 (Reuters) - A liquidation
petition filed against China's Country Garden  2007.HK  will
ramp up pressure on the embattled developer to come to the
negotiating table for debt restructuring talks, some of its
offshore creditors, advisers, and analysts said.
    The liquidation order against peer China Evergrande
 3333.HK  in January will also inject urgency into Country
Garden to start formal discussions with creditors, they said.
    Country Garden said on Wednesday a liquidation petition had
been filed against it in a Hong Kong court for non-payment of a
$205 million loan by a creditor, Ever Credit Limited, a unit of
Hong Kong-listed Kingboard Holdings  0148.HK . The court hearing
has been set for May 17.
    "These winding up petitions are often used as a tactic (by
the bondholders and their advisers) to get the chairman back to
the negotiating table," said Omotunde Lawal, head of emerging
markets corporate debt at Barings in London.
    She added that "no one wants to go through the winding up
process" because it has knock-on effects for the property
developers' onshore businesses and causes everything "to grind
to a halt".
    Foshan, Guangdong-based Country Garden, China's biggest
private property company by sales, got entangled in the
country's spiralling real estate liquidity crisis that began in
2021. The developer's $11 billion worth of offshore bonds is now
deemed to be in default. Its total liabilities are close to $200
billion.
    China's property sector, which accounts for a quarter of the
world's second-largest economy, has lurched from one crisis to
another since 2021 after a regulatory crackdown on debt-fuelled
construction triggered a liquidity squeeze.
    A string of developers have defaulted on their repayment
obligations since then, and they have either launched or are in
the process of starting debt restructuring processes to avoid
facing bankruptcy or liquidation proceedings.
    Evergrande, the world's most indebted developer with $300
billion in liabilities, was ordered to be liquidated by a Hong
Kong court.
    The long-drawn, and in some cases, financially unviable
restructuring processes have frustrated offshore creditors, many
of whom are looking at the prospects of massive haircuts on
their investments. 
    "It is a good thing that some creditors are taking actions
and putting more pressure on Country Garden to get them to the
negotiating table ... the sooner creditors can lock some terms,
the better," said a Hong Kong-based Country Garden bondholder.
    The bondholder could not be named as they were not permitted
to speak to media.
    Country Garden and Kingboard did not respond to requests for
comment from Reuters.
    
    COUNTRY GARDEN VS EVERGRANDE
    Country Garden said this week it would oppose 'vigorously'
the petition filed by the Kingboard unit, and that it was
working on its debt restructuring program and hoped to update
the market on the terms as soon as 'practicable'.
    Its debt restructuring process kicked off in recent weeks
with the appointment of financial and legal advisers.
    At least 20 Hong Kong-listed Chinese real estate developers
have defaulted on dollar bonds, according to a Reuters tally,
which has required them to enter into restructuring talks with
creditors or face liquidation.
    While the talks are becoming increasingly common, only Sunac
 1918.HK  has completed its $9 billion debt restructuring deal
last year.
    "In general, it is still in creditors' best interest to
negotiate a restructuring deal than push for liquidation," said
KT Capital Group senior researcher Fern Wang, who publishes on
Smartkarma.
    Industry observers expect Country Garden's restructuring
process and proposal to be more favourable for creditors than
Evergrande's, which failed to get approval from its bondholders
before its liquidation was ordered.
    Country Garden's total liabilities are only two-thirds of
Evergrande's. And it has more equity options to leverage and
offer to creditors, given it still has a market value of HK$18
billion ($2.30 billion) and owns a property management unit
worth HK$20 billion, analysts said.  
    Country Garden founder Yeung Kwok Keung, whose company built
its scale by acquiring cheaper and vast amounts of land from
local government, and was seen as a top philanthropist in China,
is also said to have strong ties with the authorities.
    In comparison, Evergrande chairman Hui Kai Yan is now under
investigation for suspected crime, a move that also put
roadblocks in its restructuring process.

 (Reporting by Marc Jones in London, Xie Yu and Clare Jim in
Hong Kong, and Scott Murdoch in Sydney; Editing by Sumeet
Chatterjee and Muralikumar Anantharaman)
 ((Scott.Murdoch@thomsonreuters.com;))