Country Garden's entire offshore debt to be in default if Tuesday payment not made (updated)

Kingboard Holdings

17/10/2023 07:34

(Adds analyst comment in paragraph 4, no payment as of noon in
paragraph 5 and Gemdale developments in paragraphs 8-10)
    By Clare Jim and Xie Yu
       HONG KONG, Oct 17 (Reuters) - Country Garden's  2007.HK 
entire offshore debt will be deemed to be in default if China's
largest private property developer fails to make a $15 million
coupon payment on Tuesday, the end of a 30-day grace period.
    Non-payment of this tranche is set to trigger cross defaults
in other bonds as is standard in bond contracts.
    Lack of payment - which is expected after Country Garden
last week warned about its inability to meet offshore debt
obligations - would make the firm the latest in scores of
Chinese developers who have defaulted.
    Country Garden has also missed other offshore payments in
the past few weeks though those payments still have not seen
their 30-day grace periods lapse.    
    "I think it’s a really high-profile and visceral reminder of
just how bad things are for the developers, but the
private-sector developers in particular," said Chris Beddor,
deputy director of China Research at Gavekal Dragonomics.
    One Country Garden bondholder, who declined to be
identified, said there had been no payment as of noon on
Tuesday.
    Country Garden declined to comment.
    With nearly $11 billion of offshore bonds and $6 billion of
offshore loans, a default by Country Garden would set the stage
for one of China's biggest corporate debt restructurings.
    In a fresh reminder of just how nervous investors have
become about the crisis in the sector, another major property
developer Gemdale  600383.SS  saw its stocks and bonds plunge on
Tuesday after the resignation of its chairman.
        Gemdale said the resignation was due to health reasons
but investors, spooked by the sector's broader problems, were
taking no chances and rushed to sell its securities, analysts
said.
    Three of its bonds lost more than a fifth of their value
before their trade was suspended and its stock tumbled 9%.
    
    WIDESPREAD DEFAULTS
    So far, developers accounting for 40% of Chinese home sales
have defaulted on their debt obligations since 2021, according
to JPMorgan. CreditSights figures show Chinese developers have
defaulted on more than $114.6 billion of $175 billion in dollar
bonds outstanding since 2021.
    As more developers moved towards restructuring debt, their
offshore creditors are expected to be offered less favourable
terms amid a worsening outlook for the country's real estate
sector.
    Country Garden has appointed Houlihan Lokey, China
International Capital Corporation (CICC) and law firm Sidley
Austin as advisers to examine its capital structure and
liquidity position and formulate a 'holistic' solution.    
    Last week, printed circuit board maker Kingboard Holdings
 0148.HK  became one of the first known listed companies to take
legal action against Country Garden when a unit, which is owed
HK$1.6 billion ($204 million), issued a statutory demand seeking
repayment.
    China has rolled out a flurry of support measures in recent
months to revive its property sector. The sector, which accounts
for a quarter of the economy, has been in crisis since
policymakers began cracking down on the industry's debt levels
in 2021. 
    Analysts have said that the new measures are not enough to
turn around the sector any time soon but industry data out this
week will be closely watched to gauge how much effect the steps 
have had so far.
    Property sales by floor area are due out on Wednesday and
nationwide prices of new homes for September will be released on
Thursday.
        
($1 = 7.8203 Hong Kong dollars)

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 (Reporting by Clare Jim and Xie Yu; Additional reporting by
Kane Wu; Editing by Edwina Gibbs)
 ((clare.jim@thomsonreuters.com;))