China’s Country Garden Makes Overdue Dollar-Bond Payments, Narrowly Avoiding Default
The property giant paid $22.5 million in coupons to international bondholders just before the end of a 30-day grace period
Embattled Chinese property giant Country Garden Holdings 2007 -0.98%decrease; red down pointing triangle made two overdue bond-coupon payments shortly before the end of a 30-day grace period, averting an international debt default that many investors saw as inevitable.
The 31-year-old developer on Tuesday made interest payments totaling $22.5 million on U.S. dollar bonds with a combined face value of $1 billion, according to a person familiar with the matter. The coupon payments were originally due in early August.
The financial struggles of Country Garden, which has been China’s top surviving developer after dozens of its peers defaulted on their debt, have rattled the country’s beleaguered housing sector and financial markets. The company’s cash crunch is a direct result of declining new home sales, which stem from weak consumer confidence and potential home buyers’ worries about the direction of home prices while China’s economy sputters.
In August, new home sales at China’s largest developers fell a third from the same month a year ago. Country Garden experienced a steeper drop in its monthly contracted sales, which declined by more than 70% to the equivalent of $1.1 billion in August.
Investors are still highly pessimistic about the Foshan-based company’s ability to withstand the downward spiral in China’s housing market and continue paying off its debt. As of June 30, Country Garden had the equivalent of $15 billion in bonds, bank loans and other debt coming due within a year.
The two Country Garden bonds that received their coupon payments have been trading at deeply distressed levels that indicate a very high probability of default. They were bid at around 10 cents on the dollar on Tuesday, according to Tradeweb.
The developer had signaled in recent days that it was likely to make the overdue dollar-bond payments. Late last week, Country Garden won approval from creditors in mainland China to extend the maturity date of $537 million in yuan-denominated bonds by three years. It also made an interest payment of around $600,000 on a bond denominated in Malaysian ringgit on Monday.
The company also plans to extend the maturities of seven more domestic bonds, according to the person familiar with the matter.
Country Garden and its subsidiaries have roughly $10 billion of U.S. dollar bonds outstanding, according to data compiled by YY Rating, an independent Chinese credit-research firm. The company also has international bonds in other currencies, including the Thai baht and Hong Kong dollar.
Country Garden has two more dollar-bond coupon payments totaling $55 million in September. It has a $1 billion note due in January next year. It also has a 400 million Thai baht, the equivalent of about $11 million, note maturing late next month.
Around two years ago, property giant China Evergrande Group also missed some dollar-bond interest payments and made them before their grace periods expired. By late 2021, Evergrande, the world’s most indebted developer, was unable to keep up with its payments and finally defaulted on its dollar bonds. The company reached a debt-restructuring deal with its international bondholders earlier this year after protracted negotiations with creditors.
Chinese authorities are trying to do more to revive housing demand after largely standing by for much of the past two years while dozens of property developers slid into distress. In recent weeks, regulators have made it easier for Chinese citizens to buy properties by loosening the definition of first-time home buyers and lowering minimum down-payment ratios on people’s first and second home purchases.