Country Garden faces fresh test for onshore bond extensions

By Xie Yu

HONG KONG (Reuters) -Embattled developer Country Garden faces a new round of voting by creditors to extend several debt maturities on Monday, having avoided default at the last minute twice already this month to bring some respite to the crisis-hit Chinese property sector.

The voting, due to conclude by 10 p.m. Hong Kong time (1400 GMT), will have onshore creditors decide on approving a proposal by Country Garden to extend repayments of eight onshore bonds by three years.

The latest voting comes after the country’s largest private developer on Sept. 1 won approval from creditors to extend payments by three years for a 3.9 billion yuan ($533 million)onshore private bond.

That voting was delayed by two times before Country Garden’s proposal won support from 56.08% of participating creditors. It also managed to avoid default in the offshore market, with a last-minute bond coupon payment last week.

Country Garden’s bondholders on Monday will vote separately on proposals to extend the maturities of eight onshore bonds, which were issued by the developer and a subsidiary and were set to mature and be puttable in 2023 and 2024.

Country Garden did not immediately respond to request for comment.

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

It faces 108.7 billion yuan ($14.9 billion) worth of debts due within 12 months, while its cash level are around 101.1 billion yuan as of end-June, according to the company’s interim financial statement.

In the offshore market, Country Garden has at least five coupon payments due this month, including two relatively sizable dollar bond coupons worth $15 million due on Sept. 17, and $40 million on Sept. 27, each with a 30-day grace period.

Any default by Country Garden would exacerbate the country’s spiralling real estate crisis, put more strain on its struggling banks, and could delay the recovery of not only the property market, but the overall Chinese economy.

CONTAGION RISK

Country Garden has so far shown a “higher willingness to stave off a default” than many of its peers, said Nicholas Chen, a Singapore-based analyst at research firm CreditSights.

Chen expects Country Garden to continue striving to defer due bond payments on both onshore and offshore markets and said Chinese regulators were likely involved with the developer due to “potential contagion risk to other upstream and downstream sectors, as well as the various local governments”.

Chinese authorities have rolled out a raft of support measures over the last few weeks for the heavily indebted property sector, including lowering existing mortgage rates and preferential loans for first-home purchases in big cities.

The property sector accounts for roughly a quarter of the Chinese economy and a recovery is crucial to Beijing’s plan to shore up the sputtering growth in the world’s second-largest economy.

New bank lending in China beat expectations by nearly quadrupling in August from July’s level, according to official data released on Monday, as the central bank sought to shore up economic growth amid soft demand at home and abroad.

China stocks rose on Monday, buoyed by fresh government policies to boost investor confidence, but property sector shares dropped. Shares in Country Garden fell 7.5% ahead of the voting result.

($1 = 7.3490 renminbi)