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China’s Country Garden is on the verge of announcing a potential restructuring of its offshore debt, according to local reports. This development comes as bondholders of the embattled China Evergrande Group express concerns about the possibility of liquidation.
Evergrande Creditors Fret Over Impending Liquidation
Country Garden, which failed to meet two dollar interest payments last month, now faces the imminent maturity of two coupons. Thus, amounting to $66.8 million, due on Monday. Cailianshe, a prominent media outlet, has suggested that the company may soon unveil a restructuring plan.
Debt Crisis Hits China’s Property Sector Hard
The developer has refrained from commenting on the media report, leaving questions unanswered about whether any payments have been made. With $10.96 billion in offshore bonds and 42.4 billion yuan ($5.81 billion) in non-yuan denominated loans, a default could necessitate a complex debt restructuring. While the company’s assets remain at risk of liquidation by creditors.
The coupons due on Monday are associated with Country Garden’s 6.5% April 2024 and 7.25% April 2026 bonds. Although these payments have a 30-day grace period, the developer faces a critical test later this month. Failure to pay a $15 million September coupon by October 17 could lead to the entire offshore debt being deemed in default.
Bondholders Demand Clarity Amidst Regulatory Uncertainty
The Chinese property sector has been grappling with a debt crisis since 2021, with numerous private property developers, accounting for 40% of Chinese home sales, defaulting on their obligations, leaving numerous housing projects unfinished.
The situation has only worsened over the past two years as confidence in both the housing and capital markets has eroded, putting additional pressure on developers’ liquidity.
In a statement on Monday, a key bondholder group of Evergrande expressed surprise over Evergrande’s recent announcement that its offshore debt restructuring plan failed to meet regulatory requirements. Evergrande, at the epicenter of China’s debt crisis, disclosed last month that its billionaire founder was under investigation for unspecified crimes. Additionally, it revealed its inability to issue new debt, a crucial step in the restructuring process, due to an ongoing investigation of its primary unit.
Despite repeated requests, the bondholder group claimed it had not received any documents or filings from Evergrande. They urged the developer to seek resolution from regulators to allow the restructuring to proceed, emphasizing that, until then, the base case scenario is that China Evergrande Group will face liquidation at the upcoming winding-up hearing on October 30, 2023.
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Evergrande has not responded to Reuters’ request for comment.
Market participants are now speculating that authorities may intervene to manage the fallout, as a disorderly collapse of Evergrande could have severe repercussions on the already fragile Chinese economy. Evergrande has hundreds of thousands of unfinished homes across the country and $300 billion worth of liabilities in China alone.
Beijing’s Support Measures Aim to Stabilize Property Market
To revive the sector, Beijing has implemented a series of support measures over the past few months, as the property sector constitutes approximately a quarter of the world’s second-largest economy. However, some analysts argue that additional measures are required.
UBS, in a research note on Friday, noted that property sales growth in major cities likely remained weak in September. Thus, indicating limited sales recovery despite the supportive measures aimed at addressing the property crisis.
During the Golden Week holiday, China’s average daily home sales, based on floor area, declined by 17% compared to the previous year, according to China Index Academy’s data.
Market Watchers Await Country Garden’s Payment Deadline
All eyes are now on Country Garden to see if it can evade default by making last-minute payments. In September, Country Garden secured approval from its onshore creditors to extend yuan bond payments. And managed to make coupon payments in the final hours of the grace period on the offshore markets. However, the developer has not yet settled a $15 million coupon due on September 17 and another $40 million coupon due on September 27. Both of which come with 30-day grace periods.
On Monday, Country Garden’s shares dropped more than 6%. While Evergrande Group’s shares plummeted by 11%, in contrast to a 1.9% decline in the Hang Seng Mainland Properties Index.
Shares of China Evergrande New Energy Vehicle Group experienced volatility after announcing the suspension of a share sale plan with U.S.-listed NWTN. Thus, citing “significant uncertainties” linked to Evergrande group. The stock, suspended since September 28, fluctuated between a 10% decline and a 9% gain.
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