Country Garden liquidation petition adds to China’s real estate woes By Reuters

© Reuters. FILE PHOTO: Chinese developer Country Garden’s corporate logo is pictured at the Shanghai Country Garden Center in Shanghai, China, on August 9, 2023. REUTERS/Aly Song/File Photo

Written by Scott Murdoch, Clare Jim, Xie Yu

(Reuters) – Chinese developer Country Garden filed a liquidation petition on Wednesday for non-payment of $205 million in loans, dimming its prospects for improving its debt and undermining China’s efforts to restore confidence in its real estate sector. It was revealed.

Country Garden said in a filing with the Hong Kong Stock Exchange that it would “firmly” oppose the petition filed by creditor Ever Credit Limited, an affiliate of Hong Kong-listed Kingboard Holdings.

A court hearing was scheduled for May 17. Kingboard did not immediately respond to Reuters’ request for comment.

Shares of Country Garden fell more than 12% on Wednesday after the filing, up 0.2% against the benchmark.

The petition is designed to revive concerns among homebuyers and creditors about a debt crisis in China’s property sector as the country seeks to boost confidence in the property industry, which accounts for a quarter of China’s GDP.

Country Garden’s liquidation could worsen the real estate crisis, place more strain on domestic lenders and delay recovery prospects not only for the real estate market but for the entire Chinese economy.

The petition came out a month after China. Evergrande (HK:) The group, the world’s most indebted property developer with more than $300 billion in debt, has been ordered into liquidation by a Hong Kong court.

Evergrande now faces a complex restructuring process that some investors believe could last more than a decade.

China’s real estate sector, a pillar of the world’s second-largest economy, has lurched from one crisis to another since 2021 after a regulatory crackdown on debt-based construction sparked liquidity pressures.

Since then, a string of developers have defaulted on their repayment obligations, many of whom have begun or are in the process of starting debt restructuring proceedings to avoid facing bankruptcy or liquidation proceedings.

New home prices in China slowed compared to the previous month in January as large cities showed some stability, but the nationwide decline continued despite Beijing’s efforts to revive demand.

“radical action”

Country Garden’s debt restructuring process, which has gained momentum in recent weeks with $11 billion of foreign debt deemed non-performing, could be clouded by a liquidation petition if it causes other creditors to think twice about the agreement.

Country Garden has appointed KPMG and law firm Sidley Austin as advisors to examine its capital structure and liquidity position and formulate a “holistic” solution.

Last October, the company missed a $15 million bond coupon repayment, and a so-called temporary group of bondholders was formed of international creditors. It was not immediately known whether Country Garden had begun talks with creditors.

The developer had total liabilities of 1.36 trillion yuan ($188.9 billion) as of the end of June 2023, close to total assets of 1.43 trillion yuan.

“Country Garden is taking so long and wasting time changing advisors that it’s no surprise that people are losing patience and would rather liquidate,” one Country Garden dollar bond investor told Reuters.

The investor cannot be named because he is not permitted to speak to the media.

Country Garden said in the filing that it “will continue to actively communicate and engage with our offshore creditors on the restructuring plan” with the goal of announcing terms to the market as quickly as possible.

“Radical action by a single creditor will not have a significant impact on the delivery of our buildings, normal operations or the overall restructuring of our foreign debt,” he told Reuters.

Last October, investment holding company Kingboard was one of the first companies to take legal action against Country Garden, issuing a statutory demand demanding repayment from Ever Credit, which owes it 1.6 billion Hong Kong dollars ($204.5 million). It has been done.

Earlier this year, Country Garden’s top executives warned that the property market would remain weak in 2024 and that the company could face more serious challenges.

Country Garden has also recently stepped up selling assets overseas to raise funds, selling a stake in its last Australian project last month and putting a residential development in east London up for sale.

($1 = 7.8244 Hong Kong dollars)

($1 = 7.1989 Yuan)