China's Top Developer Country Garden Races To Avert An Evergrande-Like Scenario

Country Garden Holdings Co. Ltd. CTRYY, one of China’s leading property developers, is facing a pivotal moment this week.

Boasting a colossal debt load of $187 billion, it bears the less-than-desirable distinction of being the globe’s most heavily indebted developer, with only a few hours standing between the company and a devastating debt default.

A Race Against The Clock

The pressure is rising as the company hurtles towards a critical deadline. Country Garden must settle a sum of $22.5 million in coupons by Sept. 6, marking the end of a 30-day grace period. These semi-annual interest payments were initially due on Aug. 6, involving bondholders of its $490 million February 2026 bonds and a $500 million August 2030 note.

Failure to meet this dollar interest payment within the grace period could lead to creditors declaring a default.

Such an outcome could potentially trigger a more significant crisis than the one experienced by China Evergrande Group, as Bloomberg warned on Monday, given that Country Garden boasts four times the number of property projects.

A Glimmer of Hope Amidst Uncertainty

While concerns loom large, there have been some recent developments.

Country Garden managed to fulfill its obligations on a ringgit-denominated bond on Monday and secured an extension with domestic investors regarding yuan-denominated bonds. However, it’s worth noting that it still owes the dollar interest payments, according to sources contacted by Bloomberg.

If the company fails to make these payments, it could trigger a cross-default, impacting also some of its ¥16 billion ($21.5 billion) in bank borrowings as of June 30.

Market Reacts to Uncertainty

Monday saw a surge in Country Garden’s share price, which soared by 14.6% in Hong Kong, making it the standout performer among Hang Seng’s components.

Despite this, dollar-denominated bonds still trade at deeply distressed levels, ranging from 10 cents to 13 cents, indicating a significant likelihood of default.

Chart: Country Garden’s Dollar Bond Trades At Low Double-Digit Cents To The Dollar

A Precarious Position

Country Garden’s financial woes have been underscored by a record loss of $6.7 billion in the first half of the year. In a report to shareholders last month, it even issued a warning about the potential for default. The company’s cash reserves have dwindled by 21% from ¥123.48 billion to ¥101.12 billion over the past year.

According to Zerlina Zeng, a senior credit analyst at CreditSights, even though Country Garden has repaid its ringgit coupon and extended its onshore bond, these actions haven’t significantly improved the company’s financial standing. She told Bloomberg that the long-term viability of Country Garden, as well as other privately-owned developers, is still largely dependent on a sustained and meaningful increase in home sales, a prospect she considers challenging.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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