(qlmbusinessnews.com Thur, 31st Aug, 2023) London, UK —
Struggling Chinese property developer Country Garden has revealed a significant loss of 48.9 billion yuan ($6.7 billion) for the first half of this year in a filing with the stock exchange. This adds to growing apprehensions of a potential catastrophic default in the sector.
The precarious state of Country Garden has ignited worries of a potential collapse, which could have extensive ramifications for the Chinese financial system, reminiscent of the situation two years ago with Evergrande.
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Country Garden, which held the position of China's largest real estate firm in the previous year, currently has four times as many ongoing construction projects as Evergrande. Ever since the latter suspended its construction projects recently, it provoked frustration among homebuyers who organized protests and ceased mortgage payments in objection.
Evergrande, holding the title of the world's most indebted property company with liabilities amounting to $328 billion, has witnessed more than a 99% decline in its share market value over the last three years. Following a 17-month suspension, the company resumed trading on the Hong Kong stock exchange on Monday, having utilized the suspension period in an attempt to restructure its offshore debt.
As one of China's largest builders, Country Garden has amassed debts exceeding $150 billion and acknowledged this month that it had failed to meet interest payments on two loans.
Unlike many major homebuilders, Country Garden has managed to avoid default since Beijing introduced the “three red lines” policy in 2020, aimed at curbing debt levels within the heavily leveraged sector. These red lines establish thresholds for liabilities-to-asset ratios and mandate companies to hold cash reserves equivalent to at least 100% of short-term debt.
On Wednesday, the group issued a caution that if its financial performance continues to deteriorate, it might face the risk of default.
Failure to meet a bond payment deadline in early September could make Country Garden the largest Chinese real estate company to experience a crash since Evergrande in 2021.
The company's cashflow challenges have stoked concerns that it could propagate turbulence throughout China's economy and financial system.
The ascent of the world's second-largest economy has largely relied on property and construction, accounting for roughly a quarter of China's GDP.
Country Garden's losses from January to June aligned with estimates it provided in early August, ranging from 45 to 55 billion yuan. In the same period the previous year, the company had posted a meager profit of 612 million yuan.
“The contraction of the property sector, coupled with the as-yet-unrestored confidence in the capital market, exerted mounting pressure on the company's business operations,” Country Garden stated in its filing to the Hong Kong stock exchange.
The company also announced its intention to issue new shares valued at 255 million yuan.
While grappling with creditors to reschedule debt repayments and avoid default, Country Garden postponed a bondholders' vote on extending repayment terms, as reported by Bloomberg.
Country Garden, a significant employer for tens of thousands, holds a position among Forbes' top 500 global companies. Its leader, Yang Huiyan, recently held the title of Asia's wealthiest woman.
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The challenges faced by Country Garden and Evergrande are exacerbating weaknesses in a property sector already battered by the pandemic and China's economic deceleration. Additionally, these issues discourage prospective homebuyers, further pressuring other real estate firms.
As a testament to the market's frailty, government figures indicate that home prices saw the most rapid decline in a year in July.
In an effort to stimulate the crucial sector, authorities are taking steps to ease mortgage regulations in major cities like Guangzhou and Shenzhen.
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