China’s largest private property developer, Country Garden Holdings, has warned that it may not be able to repay its offshore debt obligations on time, as it struggles with a cash crunch and a declining market.
In a filing to the Hong Kong Stock Exchange on Tuesday, the company said that it faced “significant” uncertainty regarding its asset disposal and liquidity position, and that it might not be able to meet all of its offshore payment obligations when due or within the relevant grace periods.
“Such non-payment may lead to relevant creditors of the Group demanding acceleration of payment of the relevant indebtedness owed to them or pursuing enforcement action,” the company said.
Country Garden is one of the many Chinese property developers that have been hit by a liquidity crisis since 2021, when the government tightened regulations on the sector to curb excessive borrowing and speculation. The crisis has been exacerbated by a slowdown in demand for housing in China, as the economy faces headwinds from the COVID-19 pandemic, trade tensions, and power shortages.
Country Garden was due to pay $66.8 million in interest on two US dollar-denominated bonds on Monday, but it has a 30-day grace period to make the payments. The company also faces another deadline on Oct. 17, when its entire offshore debt could be declared in default if it fails to pay a $15 million coupon that was due in September.
According to Reuters, Country Garden has $10.96 billion of offshore bonds and 42.4 billion yuan ($5.81 billion) of non-yuan loans. If it defaults, these debts will need to be restructured, and the company or its assets could also face liquidation by creditors.
The company reported a record loss of 7.8 billion yuan for the first half of 2023, compared with a profit of 14.6 billion yuan in the same period last year. Its contracted sales for the nine months till September dropped by about 43.9% and 65.4%, compared with the corresponding periods in 2022 and 2021.
The company said that it had appointed investment bank Houlihan Lokey, China International Capital Corporation (CICC), and law firm Sidley Austin as advisers to examine its capital structure and liquidity situation.