Country Garden’s debt fix is a bet against Beijing

Sunac China Holdings

10/01/2025 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Chan Ka Sing
       HONG KONG, Jan 10 (Reuters Breakingviews) - Hefty
haircuts look set to become fashionable for lenders to  China’s
major property developers. Country Garden  2007.HK , once the
country's largest by sales, is offering to buy back $16.4
billion worth of offshore debts at 10% of their face value.
Acceptance would imply creditors have given up on the government
implementing more substantive policies any time soon to boost
home prices.
    Despite Beijing’s various measures to shore up the real
estate market since May, and pledges of more stimulus to come,
the distressed sector has been unable to shake off the gloomy
sentiment going into 2025.
    China Vanke remains one of the few yet to default, but with
its bonds trading as low as 74 cents on the dollar, investors
are once again betting on the Shenzhen-based giant going under
this year. Sunac China  1918.HK  struck a deal to restructure $9
billion of offshore bonds more than a year ago, but the
company’s shares dived more than 30% on Friday after receiving
another liquidation petition in Hong Kong, suggesting another
round of debt restructuring may beckon. 
    Sunac Chair Sun Hongbin is also in talks to restructure 16
billion yuan ($2.1 billion) worth of onshore debt, with one
option being to buy some back at an 82% haircut. Sunac and
Country Garden have both offered alternatives. In the latter’s
latest proposal, creditors could swap into shares in the next
three-and-a-half years, or take on new debt that matures in a
decade. Regardless of the pricing details, creditors would have
to commit to a lengthier ride in China’s property market, which
at its peak accounted for a quarter of the $18 trillion economy.
    The developers themselves don’t seem optimistic about a
quick turnaround. Country Garden said on Thursday it expects
home prices to decline further this year and post low
single-digit growth in the following seven years. Based on this
assumption, the company hopes to generate up to 25 billion yuan
of cash to repay offshore creditors between 2024 and 2039 – only
after dealing with onshore liabilities.
    This sounds like a not-so-subtle appeal for creditors to
take the haircut, with liquidation as another dire possibility
if they don't. Unless Beijing suddenly surprises all sides with
a bumper rescue package for the sector, creditors have a stark
decision to make.
    
    CONTEXT NEWS
    Country Garden on Jan. 9 offered creditors several options
for restructuring $16.4 billion of offshore debt. These include
taking a 90% haircut or receiving new debt instruments maturing
in 11.5 years.

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Graphic: Chinese property stocks are slumping again    https://reut.rs/4j7LTpb
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 (Editing by Antony Currie and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))