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Chinese developer Country Garden suspended trading in at least 10 of its mainland bonds on Monday, leading to a broader sell-off in property-related stocks, with the company’s shares falling to record lows.

The company, once China’s biggest developer by sales, missed an international bond payment last week, signaling a potential escalation in the property sector’s two-year liquidity crisis.

The group’s shares fell 18.4 percent in Hong Kong after a statement over the weekend that trading in bonds issued by the company and its subsidiaries would be suspended this week.

Shares of developer Jinmao Holdings also fell 9.8 percent after it issued a profit warning late Friday. Hong Kong’s index, which tracks the mainland’s property sector, fell 4.8%, while the broader Hang Seng lost 2.5% and China’s CSI 300 lost 1.3%.

One of the Shanghai-listed Country Garden bonds, due to mature next month, last traded at 27 cents, down from near par in January, when China lifted Covid-19 restrictions and investors were optimistic about a strong economic recovery. optimism. the world’s second-largest economy. The bond was trading at 50 cents a few weeks ago.

Stock price line chart (HKD) shows Country Garden share price falls to new low on liquidity concerns

Until recently, Country Garden was viewed as a safer prospect than many of its highly leveraged peers. The battle for survival is a major test of the health of China’s real estate sector, as well as Beijing’s property policies, as homebuyer confidence wanes.

Analysts at Morgan Stanley downgraded Country Garden to underweight on Monday, warning that the company’s “deteriorating liquidity could lead to a higher likelihood of default in the near term”.

Dozens of developers have defaulted since Evergrande collapsed in 2021, and Beijing has so far failed to bail out any domestic developers, instead focusing on the completion of residential properties. But officials have stepped up support for the industry in recent weeks amid fears of widespread default.

“Two weeks ago, the government insisted that it would support the property sector, but that never happened,” said Dickie Wong, head of research at Kingston Securities in Hong Kong. “The next 30 days are very critical for Country Garden.”

Beijing launched a deleveraging campaign in 2020 aimed at cooling overheated housing prices. It limits access to credit for private home builders, which typically sell residential apartments before they are completed and rely on the quick flow of cash.

Evergrande, the world’s most indebted developer, disclosed last month that it would lose $81 billion in 2021 and 2022, exposing the scale of the company’s debt crisis as it undergoes an opaque restructuring process.

In further signs of debt woes, a number of Chinese listed companies said in stock exchange filings over the weekend that they had not yet received payments due from companies affiliated with Zhongzhi Enterprise Group. Zhongzhi Enterprise Group is a private creditor of real estate groups such as Evergrande.

Country Garden said on Friday it would “spare no effort to save itself”, disclosing an expected loss of 45 billion to 55 billion yuan ($6.2 billion to $7.6 billion) in the first half of this year. From January to July, its sales were 140.8 billion yuan, down 61% from the same period before the industry-wide cash crunch in 2021.

“You can see stock prices plummeting and all they can do at the moment is stop trading and try to stabilize sentiment,” Huang said.

Elsewhere in the region, Japan’s Topix and South Korea’s Kospi both fell around 1%.

Additional reporting by Wang Xueqiao in Shanghai

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