One of China’s last major developers to have so far avoided defaults amid the nation’s property debt crisis slid in equity and credit markets Tuesday, after canceling a share placement.
Shares of Country Garden Holdings Co., one of China’s largest private-sector developers, fell as much as 11% in their biggest drop this year, and ended down 7.6%. Its closely watched dollar bond due January next year, its nearest such maturity, dropped 2.3 cents Tuesday to 32.5 cents, a level that indicates high uncertainty on repayment.
The firm scrapped a primary share placement of HK$2.34 billion ($300 million) after offering shares at HK$1.30 apiece, a person with knowledge of the matter said, attributing the move to internal considerations. The company later said in a filing that no definitive agreement had been reached and added it’s not considering the proposed transaction at this stage. The placement arranged by JPMorgan Chase & Co. had attracted enough investor orders to go forward, the person said, asking not to be identified as the information isn’t public.
Country Garden’s decision to backtrack on the fundraising fueled mounting uncertainty over its debt repayments. The builder could have used that money to help repay a portion of $2.9 billion in bond debt, across all currencies, due the rest of the year. Any payment failures would send fresh shockwaves through the broader property market that authorities have been trying to stabilize amid a years-long debt crisis and record defaults. Home sales tumbled the most in a year in July, adding urgency for policymakers to act swiftly on promises to facilitate funding.
“Country Garden is at high risk of defaulting, unless there is imminent policy support from the government to aid the developer’s access to financing at the enterprise level,” said Leonard Law, senior credit analyst with Lucror Analytics, a provider of research on the high-yield bond market. “The survivability of Country Garden hinges on the policy. Currently, it is uncertain if such support would come.”
There were already market signs of wider impact Tuesday. Chinese developer shares mostly traded lower on renewed placement concerns. A Bloomberg Intelligence gauge of developer shares fell 3.5%, led by Shimao Group which was down 30%.
Investors are increasingly doubtful whether Country Garden, which was China’s top developer at the end of last year, can maintain its reputation as a rare survivor of the wave of defaults that has engulfed the sector since early 2021.
The builder said Monday it expects to swing back to a net loss for the first half this year, underscoring how an enduring property slump is weighing on some of the strongest private builders. JPMorgan Chase & Co. downgraded the stock last week as liquidity concerns surrounding China’s private developers are unlikely to ease anytime soon.
READ: Country Garden Warns of First-Half Loss on Real Estate Slump
Country Garden said in a filing it will try to ensure the security of cash flow through various measures including “managing and optimizing debt repayment arrangement.”
Policy Hopes
With a series of policy efforts last year having failed to turn around the sector, the latest vows following the July Politburo meeting have rekindled hopes. The Politburo is the Communist Party’s top decision-making body.
China’s leaders pledged to optimize and adjust property policies to ensure the sector’s healthy development and omitted the slogan that “houses are for living, not for speculation” for the first time in years. The securities watchdog added last week it will maintain stable financing channels for the sector.
Chinese high-yield dollar bonds whipsawed last week as policy hopes were offset by liquidity concerns. Their prices remain down about 14% from this year’s peak in February, according to a Bloomberg index.
Renewed Defaults
Any optimism may quickly fizzle out if policy actions fail to come through. Signs of funding stress have been growing with Central China Real Estate Ltd. and Greenland Holding Group Co. missing payment deadlines in recent months, highlighting how even some of the once safe-looking developers are struggling.
Country Garden’s $2.9 billion debt obligation by the end of December is for principals including those for puttable notes as well as interest payments, according to data compiled by Bloomberg. Thirteen of the notes are onshore securities, with 16.5 billion yuan ($2.3 billion) due.
More than a third of the maturity wall falls in September. The month will see about 7.8 billion yuan of principal and interest for four onshore notes and $59 million of coupon for six offshore bonds due.
An official at Country Garden didn’t offer comment when reached by Bloomberg News, referring instead to public filings.
Below is a list of payments facing the developer this year.
Local bonds:
2.21 billion yuan note matures Aug. 1 and 99.41 million yuan of interest due
800 million yuan note puttable on Aug. 12 and 37.52 million yuan of interest due
3.91 billion yuan note matures Sept. 2 and 220.58 million yuan of interest due
1.44 billion yuan note puttable on Sept. 14 and 62.14 million yuan of interest due
48 million yuan of interest due Sept. 19
2 billion yuan note puttable on Sept. 24 and 87.6 million yuan of interest due
492.27 million yuan note matures Oct. 21 and 22.15 million yuan of interest due
1.78 billion yuan note puttable on Nov. 3 and 73.79 million yuan of interest due
992.65 million yuan note matures Nov. 20 and 49.43 million yuan of interest due
800 million yuan note puttable on Dec. 13 and 39.04 million yuan of interest due
200 million yuan note puttable on Dec. 13 and 8 million yuan of interest due
1 billion yuan note puttable on Dec. 17 and 63 million yuan of interest due
43 million yuan of interest due Dec. 26
Offshore Bonds
$10.5 million of interest due Aug. 6
$12 million of interest due Aug. 6
2.9 million Malaysian ringgit of interest due Sept. 4
22.68 million Thai baht of interest due Sept. 16
18.9 million baht of interest due Sept. 17
$15.38 million of interest due Sept. 17
$40 million of interest due Sept. 27
7.81 million ringgit of interest due Sept. 27
4.48 million baht of interest due Oct. 1
$17.88 million of interest due Oct. 8
$48.76 million of interest due Oct. 8
400 million baht bond matures Oct. 19 and 4.03 million baht interest due
$15.63 million of interest due Oct. 22
$9.69 million of interest due Oct. 22
60.5 million India rupee of interest due Oct. 25
1.24 million ringgit of interest due Nov. 6
$14.69 million of interest due Nov. 27
HK$3 billion bond matures Dec. 5 and HK$ 67.5 million interest due
$9.1 million of interest due Dec. 15
22.44 million baht of interest due Dec. 16
18.7 million baht of interest due Dec. 17
--With assistance from Emma Dong, Alice Huang and John Cheng.
