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Country Garden has requested a 40-day grace period for a renminbi bond maturing next week, in the latest sign of distress at one of China’s largest private property developers.
The request came just a day ahead of Country Garden’s first-half results and underscored the intensifying financial strain on the Chinese real estate sector, even after top officials pledged greater support for the cash-strapped industry last month.
The lack of more concrete stimulus to bail out the ailing sector has piled downward pressure on developers’ Hong Kong-listed shares, which have fallen by about a third this year alongside a string of missed payments on dollar bond obligations.
Underscoring concerns over the sector’s liquidity crisis, China Evergrande shares fell almost 90 per cent when they resumed trading for the first time in 17 months and as the developer delayed a crucial restructuring meeting with creditors on Monday.
Country Garden, which has liabilities of almost $200bn, asked creditors to approve a grace period of 40 days for a bond with Rmb3.9bn ($535mn) outstanding principal coming due on September 4. A meeting to vote on the proposal will be held no later than August 31, according to a private filing to investors through the Shanghai Stock Exchange.
Country Garden, once considered among the Chinese developers least likely to default, missed interest payments of $22.5mn on two $500mn international bonds earlier this month.
But traders said the central government took onshore obligations far more seriously and that creditors would be under pressure to extend the maturity date of the renminbi bond coming due on Monday.
“The bondholders don’t want Country Garden to default, they want to discuss better terms, but they couldn’t get 50 per cent approval for a full extension, so they have to go for a grace period,” said a Hong Kong-based bond trader at one Chinese broker.
The trader added that creditors would “probably be willing to give them the grace period, but all of this is just kicking the can down the road”.
News of the grace period request, which was first reported by Bloomberg, pushed shares in Country Garden up about 9 per cent in afternoon trading in Hong Kong, but the company’s stock is still down about 50 per cent this year, reflecting a loss of some $17bn in market capitalisation.
Separately on Tuesday, Country Garden Services, the developer’s real estate management affiliate, reported first-half results, revealing that profits fell 11 per cent year on year to Rmb2.35bn.
If the new grace period for Country Garden’s renminbi debt is approved, investor attention will turn to early September, when the grace period for the recent missed payments on international bonds expires.
“The big question is whether they stay current on their [dollar] bonds now,” the trader said.
