Country Garden gets another debt reprieve as some offshore creditors weigh options

By Jing Bian, Xie Yu and Carolina Mandl

BEIJING/HONG KONG/NEW YORK (Reuters) -Country Garden has won approval from its creditors to extend the maturity of one more onshore bond, two sources said, as the Chinese developer battles to avoid a default amid Beijing’s ramped-up efforts to stabilise the crisis-hit property sector.

Some holders of Country Garden’s offshore bonds are in talks with law firm Ashurst to form a group to consider options if the developer fails to meet debt repayment obligations, two separate sources familiar with the matter said.

Country Garden’s woes are the latest to hit the beleaguered property sector, which was once a pillar of growth in the world’s second-largest economy but has become its biggest drag since 2021 in the wake of an unprecedented liquidity crisis.

One of the few large Chinese developers that have not defaulted on debt obligations, Country Garden has been facing liquidity pressure as sales plunged, its interim financial statements show.

Country Garden, China’s largest private property developer, has 108.7 billion yuan ($14.9 billion) of debt due within 12 months but only cash of 101.1 billion yuan as of end-June.

In the latest debt reprieve for the developer, creditors approved the maturity extension of one more onshore bond by three years, said the first two sources, who declined to be named as they were not authorised to speak to the media.

A Country Garden spokesperson did not immediately respond to Reuters’ request for comment.

Country Garden’s onshore creditors voted on Monday for proposals by the distressed developer to extend repayments on eight onshore bonds worth 10.8 billion yuan ($1.48 billion) by three years.

Of those eight Country Garden bonds, maturity extensions for six have been approved, Reuters reported on Tuesday, citing sources. The creditors’ verdict on the proposal to extend the maturity of the eighth bond is not known yet.

Shares in Country Garden jumped as much as 14% in Hong Kong on Wednesday to their strongest since Sept.7, before ending up 2.8%. Mainland Properties Index gained 0.1%.

Before the latest voting to extend the maturities of eight onshore bonds, Country Garden managed to avoid default at the last minute twice earlier this month, bringing some relief to the battered property sector.

‘EASING CURBS’

Despite the temporary debt reprieve, investors are focusing on near-term sales prospects for Country Garden and its peers after authorities rolled out a raft of property support measures in the last few weeks.

Those measures included lowering existing mortgage rates and preferential loans for first-home purchases in big cities, but analysts say more is needed to stabilise the sector, restore consumer confidence and induce an eventual recovery.

China’s property sector, which accounts for roughly a quarter of the country’s economy, has been in crisis since 2021 after the government sought to clamp down on ballooning debt and it has yet to experience a revival in sales.

“Investors will monitor how quickly Country Garden can revive its sales, going forward, with Beijing easing the curbs on the property sector,” said Ting Meng, a senior credit strategist at ANZ.

“The developer is very likely to start similar extension negotiations with offshore creditors soon, given it will be challenging for it to service the outstanding debts with its current cash positions,” she added.

Meanwhile, hedge funds specialising in distressed bond investments and restructuring have been involved in the discussions with Ashurst, said the sources, who also declined to be named as they were not authorised to speak to the media.

One of the sources said some creditors have formed informal groups to discuss potential options. Some offshore Chinese funds and wealthy individuals who hold Country Garden bonds are also involved in the talks with Ashurst, said the other source.

Some of the Country Garden bondholders are also discussing how the developer’s offshore assets can be leveraged if there is a default, said the two sources.

Ashurst did not respond to a Reuters request for comment. Country Garden declined to comment.