Country Garden, a prominent Chinese property developer, is facing a critical liquidity challenge as it approaches a deadline to pay $15 million in interest on an offshore bond. This payment is pivotal for the developer, which has narrowly avoided default twice in the recent past.
The company, which is the largest private developer in China, has been significantly impacted by the broader financial difficulties in the country’s property sector. These challenges have led to a series of support measures from Beijing. Country Garden will have a 30-day grace period after Monday’s deadline to make the coupon payment, failing which it will be considered in default.
Sandra Chow, co-head of Asia-Pacific research at CreditSights, highlighted the gravity of the situation, noting that a failure to meet this obligation within the grace period would result in the immediate due date for the principal amount. This could also trigger cross-default terms on other debts.
Concerns about Country Garden’s ability to fulfill its debt obligations stem from its declining cash reserves amid weak property sales in China. The company itself has previously warned of potential default risks if its financial situation continues to deteriorate. As of June, Country Garden reported approximately 108.7 billion yuan ($14.9 billion) in debt due within the next 12 months, compared to its cash reserves of about 101 billion yuan ($13.9 billion).
The developer had previously averted default by securing extensions for payments on an onshore private bond and by making overdue coupon payments on two dollar bonds within the grace period earlier this month.
As of last week, onshore bondholders agreed to a three-year extension for the repayment of seven other Country Garden bonds. The company’s shares were seen trading nearly 1 percent higher in Hong Kong amidst these developments.
However, many creditors are increasingly concerned that without imminent liquidity support, Country Garden may need to restructure its offshore debt. In light of this, some offshore creditors have begun discussions with law firms Kobre & Kim LLP in New York and Ashurst in London, contemplating forming groups in case the developer opts for debt restructuring.
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