Country Garden debt deal, China property support measures trigger relief rally

HONG KONG/NEW YORK: Country Garden’s deal with creditors for an extension on onshore debt payments worth 3.9 billion yuan ($537 million) boosted shares in the developer on Monday and gave China’s crisis-ridden property sector some much-needed respite.

Shares in Country Garden jumped as much as 19% to their highest level since Aug.

10 and were set for the biggest one-day percentage rise since November.

Hong Kong’s Hang Seng mainland properties index rose more than 9%.

But while investors in the company may be heaving sighs of relief, it remains to be seen whether a raft of government stimulus measures will soon help revive demand, ease the sector’s cash squeeze and lift the gloom over the wider financial system.

Beijing on Monday added to its series of policy measures in recent months to revive the world’s second-largest economy, approving the setting up of a special bureau to promote the development and growth of the private economy.

The private sector is responsible for 80% of new urban jobs, but has struggled to attract investment amid a frail economic recovery over the first half of the year, with business owners also constrained by weak domestic demand.

The worsening financial woes of Country Garden have only further highlighted the fragile state of the country’s real estate industry which accounts for roughly a quarter of the economy and has been in dire debt straits since 2021.

Considered financially sound compared to peers, China’s top private developer had not missed a debt payment obligation, onshore or offshore, until coupon payments on dollar bonds last month after slowing home demand hurt its cash flow.

Since then, Chinese authorities have rolled out a number of measures, the most significant being the lowering of existing mortgage rates and preferential loans for first-home purchases in big cities.

“We will see in the coming months if these supply-side measures are able to revive homebuying demand, which is crucial for the fate of China’s developers and their ability to handle their upcoming debt maturities,” said Tara Hariharan, managing director at global macro hedge fund NWI Management in New York.

She noted that Country Garden and other developers face payments for sizeable maturities this year.

In the deal reached after a vote on its proposal late on Friday, Country Garden is now allowed to repay the onshore debt in instalments over three years, instead of meeting its obligations by Sept. 2.

Restructuring talks

Country Garden has also wired interest payments tied to a 100 million Malaysian ringgit ($21.5 million) bond that was due on Sept. 2, said a source familiar with the matter, in another sign the company is striving to meet payment deadlines and avoid default.

The source asked not to be named due to the sensitivity of the matter.

The developer also has another impending debt payment challenge - the ending of a grace period on Tuesday for last month’s missed coupon payments worth a total of $22.5 million on two offshore dollar bonds.

That it was able to avert an onshore default with the extension deal has raised hopes it will be able to make the interest payments on those bonds, said three of its offshore creditors.

The bondholders declined to be named as they were not authorised to speak to the media.

After making the interest payments, the creditors said they expect Country Garden to enter into restructuring negotiations for its entire offshore debt to avoid a “hard default”, similar to what it did with the onshore creditors.

Country Garden did not immediately respond to a request for comment. While China’s property industry may have gained some respite, some market participants said they plan to stay away from the sector until there is a rebound in home sales.

“We sold all our Chinese real estate stocks in April 2020 and haven’t bought back any since,” said Qi Wang, CEO of Hong Kong-based MegaTrust Investment.

“Wouldn’t touch the private developers with a ten-foot pole right now.”