A residential complex developed by Chinese developer Country Garden on August 31, 2023 in Nanjing, eastern China (AFP/STR)
A respite before another crucial deadline: the Chinese developer Country Garden with astronomical debt obtained in extremis from its creditors the rescheduling of a repayment, which pushes back a potential default.
The developer, which has long been deemed financially sound, was unable in early August to repay $ 22.5 million in interest on loans, when the real estate sector is experiencing an unprecedented crisis in China.
After record losses recorded in the first half, it had to pay this Saturday the repayment of a bond loan for a total amount of 3.9 billion yuan (about 500 million euros).
According to Bloomberg, creditors agreed on Friday evening to extend the deadline to 2026, in a vote extended twice since last Friday.
Country Garden did not immediately communicate.
The group, which was still the biggest developer in China last year, is not out of the woods.
Another deadline looms next week for the two interest payments he missed in August.
If it doesn’t, Country Garden formally risks default because its 30-day grace period will end on Tuesday.
– Insufficient cash –
A default would send a shock wave through the markets and plunge a real estate sector already scalded by the health crisis and the economic slowdown in China a little more into the doldrums.
Logo of Chinese promoter Country Garden in Nanjing on August 31, 2023 in eastern China (AFP/STR)
Country Garden “does not have sufficient sources of cash” to meet the next deadlines, said Thursday the rating agency Moody’s, which lowered the group’s solidity rating by three notches.
It is now “Ca”, synonymous with “in default, with some hope of recovery”.
At the beginning of August, Moody’s had already lowered its rating for the first time.
At the end of 2022, Country Garden had a considerable debt estimated at 1.430 billion yuan (180 billion euros).
At the end of June, it had 147.9 billion yuan in cash (18.6 billion euros), a sum which it uses to complete housing already paid for by the owners even before their construction.
Real estate groups in China have long relied on this financing model. But their massive indebtedness has been perceived in recent years by the authorities as a major risk for the country’s economy and financial system.
– A thumbs up but…
Beijing has thus gradually tightened their conditions of access to credit from 2020, which has dried up the sources of financing for groups already in debt.
A construction site of the Chinese real estate developer Country Garden, on August 15, 2023 in Beijing (AFP/Archives/Pedro PARDO)
A wave of defaults followed, notably that of the Evergrande group, which undermined the confidence of potential buyers and reverberated throughout the sector, against the backdrop of an economic slowdown.
A bankruptcy of Country Garden would have immeasurable consequences for the financial system in China, with a lot of unfinished housing, unpaid suppliers and several tens of thousands of Chinese who may not be able to recover their money.
To reinvigorate a sector that has long accounted for a quarter of China’s GDP, several major cities, including Beijing and Shanghai, have relaxed the criteria for obtaining a mortgage, so that more households can benefit from it and thus stimulate demand.
The central bank, for its part, announced the forthcoming drop in rates on mortgage loans for first-time buyers.
But the effect of these measures is uncertain, warns economist Larry Hu, of the investment bank Macquarie.
They will “not necessarily result in purchases”, he believes.
Potential buyers remain concerned about their financial situation, the drop in real estate prices which are causing property to lose value and the setbacks of developers.
© 2023 AFP
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