Today's Date: October 18, 2023
These are turbulent times for Country Garden, the massive private Chinese developer. The deadline for the payment of a $15 million bond coupon has passed, and as of now, there is no word of the debt being settled, raising questions about their ability to fulfill their obligations to international creditors.
The non-payment of the coupon, in line with standard clauses in debt contracts, could trigger cross-defaults on other Country Garden bonds. The company grapples with the monumental challenge of nearly $11 billion in offshore bonds, and a default holds the potential to kickstart one of the largest corporate debt restructurings ever witnessed in China.
An anonymous bondholder of the portion in question, citing the confidential nature of the information, disclosed not receiving the coupon payment following the expiration of a 30-day grace period. Another well-informed source, in an interview with Reuters, confirmed that the coupon payment had not been made as of 10 a.m. (Brasília time) today.
Amidst this uncertainty, Country Garden issued a statement this Wednesday, expressing their expectation of not being able to fulfill all their offshore debt obligations and hinting at pursuing a "holistic" solution to their financial challenges. However, the company refrained from directly addressing the default issue, and its representatives declined further comments.
Cedric Rimaud, an analyst at GimmeCredit, a respected independent corporate bonds research firm, highlighted the severity of the situation: "If they do not make the payment within the grace period, we are facing a default."
Country Garden is not the only Chinese real estate developer facing liquidity problems. Since 2021, several other companies in the sector have encountered difficulties due to government measures aimed at curbing alarming levels of indebtedness.
The real estate sector plays a crucial role in the Chinese economy, accounting for a quarter of the entire country's economic activity. The prolonged crisis in this sector has had a detrimental impact on the world's second-largest economy and has often sent ripples through global financial markets.
The non-payment by Country Garden comes on the heels of an investigation involving the chairman of China Evergrande, another sector giant that is also in default and plays a central role in the real estate debt crisis.
Fern Wang, a senior analyst at KT Capital Group, pointed out a notable difference between Country Garden and Evergrande: "The former has maintained a stronger relationship with its creditors over time." Wang added that Country Garden was among the few major developers to meet all three debt ratio requirements introduced in 2021, while Evergrande failed on all three fronts.