(BFM Bourse) – The Chinese real estate developer will leave Hong Kong’s Hang Seng on September 4, after its share price collapsed by 40% in one month. The group has suspended trading in several bonds.
For a week and a half now, the specter of a new major bankruptcy in the real estate sector in China has rebounded with the difficulties of Country Garden Holdings.
This Chinese promoter, with total liabilities of $194 billion, according to Reuters, defaulted on bond coupons two weeks ago, and must now pay them during a ‘grace’ period 30 days. Last Monday, the company suspended negotiations on eleven bonds before warning, a few days later, that it faced “considerable uncertainties” on its repayments.
The fear of a financial restructuring, which today seems difficult to avoid, has logically weighed down the action of the promoter listed in Hong Kong. In one month, the title has lost nearly 40%, bringing its decline since January 1 to more than 70%.
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A fall such that the action of the group finds itself downgraded. On Friday, the company in charge of the Hong Kong Stock Exchange indices announced its quarterly review. This review resulted in the eviction of Country Garden Holdings from the Hang Seng, the flagship index of the Hong Kong Stock Exchange, which currently has 80 residents. As of September 4, Country Garden will be replaced by the pharmaceutical group Sinopharm.
A systemic risk?
In addition, Country Garden will be removed on the same date from the Hang Seng Enterprises Index, an index of 50 companies that brings together the most important mainland Chinese companies listed in Hong Kong. Country Garden will be replaced by Trip.com.
Country Garden is a victim of the regulatory tightening policy of the Chinese authorities, which since 2020 have tightened the screw in an attempt to curb real estate speculation, complicating access to refinancing for large groups. The developer’s difficulties can also be explained by its positioning. Country Garden was China’s top real estate developer from 2017 to last year, before dropping to sixth place, weighed down in particular by its portfolio, with 60% of projects (according to AFP) located in small Chinese cities. , where real estate prices have come under more pressure than in major cities.
According to a French Treasury study from August 2022, real estate in China represents between 14% and 30% of local GDP, which at the top of the range constitutes a higher proportion than that of the United States before the subprime crisis of 2008. .
“A default by Country Garden would be a serious problem for China. The company is synonymous with mass housing and urbanization efforts in China, due to its scale of operation, strong track record, geographic diversification and brand recognition in Tier 3 and Tier 4 cities,” said Barclays, which estimates the company’s total assets at 1.7 trillion yuan or $235 billion.
As had been the case with the other Chinese real estate developer, Evergrande, in 2021, the market wonders if the difficulties of Country Garden Holdings can be systemic, that is, if they would threaten the whole of the Mondial economy. Evergrande has just declared bankruptcy in the United States.
“The immediate impact on the economy and global markets of the problems encountered by the Chinese real estate developer Country Garden seem to be limited”, nevertheless relativized Capital Economics, last week. “Foreign exposure to the Chinese real estate sector has declined sharply in recent years and policymakers should intervene to avoid a collapse in China,” added the think tank.
“The potential bankruptcy of Country Garden is very bad news, as it could have negative implications for many parts of the Chinese and international economy. However, to think of it as a systemic risk would be wrong and to go too fast. “, abounds John Plassard de Mirabaud. “The Chinese government is fully aware that the country’s real estate sector is the world’s largest asset and will do anything to save it … after sanctioning speculators (as it did on the technology sector)”, he continues. .
Julien Marion – ©2023 BFM Bourse