How bad could China’s property crisis get?

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DECONSTRUCTED

How bad could China’s property crisis get?

Country Garden, China’s biggest property developer, told creditors that it had made a late interest payment, averting an immediate default on its debts and keeping the company financially viable for the time being.

Last month, the company missed two interest payments totaling $22.5 million on bonds that had been sold in U.S. dollars. It had a 30-day grace period to make the payment or risk default.

The delayed payments underscored the financial pressure facing Country Garden, which has been China’s top-selling homebuilder for the last six years. The company has been scrambling to raise cash to get a handle on liabilities that totaled about $187 billion at the end of June. After recently reporting a $7.1 billion loss for the first half of 2023, it warned that there were “material uncertainties which may cast significant doubt” on its ability to avoid bankruptcy.

It struck a deal to sell a minority stake in a property development, and it agreed to issue new shares at a discount to a creditor who is owed hundreds of millions of dollars from Country Garden. The company also reached an agreement with holders of its $537 million bonds denominated in yuan, the Chinese currency, that were also due, to delay repayment of the debt for three years.

The company said it must repay nearly $15 billion in debt within the next 12 months in the form of bonds, notes, and bank and other borrowings. Country Garden’s debt due within the next year is more than its current $13.9 billion in cash and cash equivalents.

The cash crunch at Country Garden, once considered a model company in China’s property industry, is the latest signal of the country’s worsening real estate crisis, which has already left dozens of home builders in default, unable to pay off their debts.

There may not be a quick resolution to Country Garden’s financial predicament. China Evergrande, once considered a rival to Country Garden for the title of top Chinese home builder, defaulted on its debt in late 2021, and it continued to restructure its debt and negotiate with creditors for almost two years before it declared bankruptcy last month.

OUR TAKE

As one of China’s largest developers teeters on the brink of default, Australia’s property industry is bracing amid fears of another looming cash crunch crisis in the world’s biggest real estate market.

Analysts predict the impact from a potential default by developer Country Garden would be “worse than Evergrande’s collapse”, as it has four times as many projects.

Risland Australia—a subsidiary of the debt-ridden Hong Kong-listed developer—is behind two large-scale residential estates with a planned total of 10,000 housing lots in Sydney and Melbourne.

The undeveloped 150ha portion of one of them—its Windermere estate in the Victorian capital’s west—already has been put on the block with a $250-million price tag.

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