Country Garden Caves to Debts as China’s Real Estate Crisis Worsens

The embattled property developer Country Garden said on Tuesday it was unable to repay a loan and expected to miss upcoming overseas debt payments as a result of plunging sales from China’s spiraling property crisis.

The announcement, made on the Hong Kong Stock Exchange, is effectively a statement from Country Garden, once China’s largest homebuilder, that it is likely to default with roughly $187 billion in liabilities. Country Garden is one of the biggest causalities of China’s imploding real estate market, which has sent Evergrande, another giant property developer, into bankruptcy.

Country Garden has been scrambling over the last few months to stave off a collapse, selling off assets to raise cash and negotiating with creditors to restructure liabilities or delay payments. But the company’s unabated struggle to sell new apartments has throttled the cash flow necessary to stay on top of debt payments.

Country Garden said presales of unfinished apartments, an important indicator of future revenue, fell for a sixth straight month in September, to 6.17 billion yuan, or $862 million. That was down 81 percent from the same month a year ago. For the first nine months of 2023, presales were down 44 percent from the same period a year earlier.

“Prevailing market conditions have made it difficult for the group to procure sufficient cash to enhance its liquidity position within a short period of time. Consequently, the group’s cash position remains under significant pressure,” the company said in the statement.

It added that there had not been “any material, industrywide improvement in property sales,” and that Country Garden faced “significant uncertainty” in trying to unload assets to improve its liquidity.

For the last two years, while other property developers failed to pay off debts after years of excessive borrowing and aggressive building, Country Garden had seemed like an outlier, a rare example of a fiscally responsible Chinese real estate firm. But as the economy struggled to rebound after Beijing lifted its restrictive Covid policies and the slump gripping the country’s property market persisted, Country Garden’s financial pressures worsened.

Country Garden has been especially hurt by its heavy exposure in China’s lesser-developed third- and fourth-tier cities, where the real estate slowdown has been more pronounced.

Last month, when Country Garden announced that it had managed to make a closely watched interest payment to avoid default, the company said it still needed to repay nearly $15 billion in debt within the next 12 months in the form of bonds, notes and bank and other borrowings.

On Tuesday, the company said it expected to miss the overseas debt payments despite an agreement by local creditors to delay the maturity of nine corporate bonds totaling about $2 billion in debt.

Jeff Zhang, an analyst covering Chinese property firms for Morningstar, said the announcement was not a surprise given the scarcity of funding options available to Country Garden and its sharp sales decline.

“We do not expect the firm’s liquidity to materially improve in the near term as home buyers and financial institutions may continue to stay on the sidelines,” Mr. Zhang said.

Country Garden said that it had not made a payment due on a $60 million loan denominated in Hong Kong dollars and that it expected not to be able to pay all of its overseas debt obligations when they came due, or even within a grace period.

The company said “its top operational priority” was to ensure the delivery of unfinished apartments, a priority for the Chinese government. The company said it had finished a total of 420,000 units in 2023, as of the end of September.

It said it had hired China International Capital and Houlihan Lokey, an investment bank that specializes in restructuring debt, as joint financial advisers.

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