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Country Garden, China’s largest private developer, has warned that it could default on its international debt, dealing a major blow to the country’s troubled real estate sector.
The company, which has about $200 billion in liabilities and nearly $10 billion in U.S. dollar-denominated debt, said in a statement filed with the Hong Kong Stock Exchange that it expected “to be unable to meet all offshore payment obligations” by then. They are due.
“Such non-payment may result in relevant creditors of the group demanding accelerated payment of relevant debts owed or taking enforcement action,” the company said on Tuesday.
The statement underscores the sudden deterioration in Country Garden’s financial health, which has weathered an industry-wide real estate cash crunch so far this year after its peer Evergrande Group defaulted in 2021.
The potential default also adds to concerns about China’s real estate sector, which typically drives more than a quarter of the country’s economic activity but has been plagued by construction delays for two years following a wave of developer bond defaults.
Country Garden failed to make an international bond payment in August, triggering a 30-day grace period, and narrowly avoided default last month. The company said on Tuesday it did not expect to make payments “during the relevant grace periods,” one of which is set to expire next week.
Country Garden was previously considered healthier than other private developers and qualified for government support programs, and its fate will put pressure on Chinese policymakers who initially sought to reduce developer leverage in 2020.
In recent months, Beijing has stepped up support for the real estate industry and lowered interest rates, and individual cities have also relaxed policies aimed at curbing overheating housing prices. However, the industry’s outlook is clouded by uncertainty over unresolved defaults.
Evergrande, the world’s most indebted developer that failed to repay its international debt for the first time two years ago, plans to restructure itself in late September after citing an unspecified “investigation” and citing regulatory restrictions on issuing new notes. was put on hold.
Advisers to international bondholders who hold about $6 billion in the company slammed the developer on Monday, saying they were “kept in the dark” after the plan was abruptly scrapped.
The bondholder group said the “base case” now is that the company will be liquidated at a liquidation hearing in Hong Kong at the end of this month.
Sunac, another former large private developer in China, this month received approval from a Hong Kong court for a $10 billion restructuring plan. Country Garden’s woes have also heightened concerns that the crisis will spread to other industries.
This summer, China’s shadow finance giant Zhongrong, which provides loans to developers worth $3 trillion, failed to pay customers.
In a separate statement to the Financial Times, Country Garden said it hoped to “comprehensively resolve the company’s current overseas debt risks.” In September, the company revealed a first-half loss of $7 billion.
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