Debt-ridden Country Garden gets creditor approval to delay 6 bond repayments

Embattled property developer Country Garden has received enough support to extend the repayment deadlines for a slew of onshore bonds due in the coming months, giving it some much-needed breathing space after it narrowly avoided default a week ago.

It got the approval of creditors who voted between last Thursday and Monday of this week to delay the repayment of six of eight onshore bonds for a period of three years, according to people familiar with the matter.

The decision on the remaining two bonds, due in October and November, was pushed to another voting session due to be held later on Tuesday.

The eight bonds issued by the Hong Kong-listed company’s subsidiaries, which have outstanding principals totalling 10.8 billion yuan (US$1.48 billion), had been set to mature or become puttable – giving bondholders the right to demand early repayment of the principal – this year and next.

The results of the vote came after Country Garden on August 31 got the green light from 56.08 per cent of participating creditors to extend an onshore bond worth 3.9 billion yuan – the largest of its repayments due in 2023 – by three years, after previously twice delaying the vote.

Additionally, Country Garden Real Estate, a unit of the developer, said on Tuesday that it has laid out repayment methods for the interest of a yuan note due next Tuesday to ensure bondholders receive their money in time, a filing to the Shanghai Clearing House shows.

Last week, the developer avoided default in the offshore bond market at the very last minute, repaying two dollar-denominated coupon payments it had missed in August within its grace period.

However, Country Garden still has interest repayments worth a combined US$55.38 million on two US bonds due this month.

The Foshan-based property developer did not immediately respond to requests for comment.

The company, which was once China’s biggest property developer by sales, saw its contracted sales in August fall 60 per cent from a year ago to 14 billion yuan, according data compiled by Chinese real estate consultancy CRIC.

It had 101.7 billion yuan of outstanding bonds as of the end of June, according to its interim results released on August 30. In total, it has 108.7 billion yuan of debts due by June next year.

Country Garden’s struggles come as China’s government launches a raft of measures in a desperate bid to spur the property market and shore up a sputtering economy.

Though the authorities last week rolled out preferential home purchase policies in Beijing, Shanghai, Shenzhen and Guangzhou, any default by Country Garden will pile pressure on China’s sluggish economic growth, given the scale of its projects and the risks of contagion to the Chinese banking system.

“China’s property sector is in the deepest downturn in decades,” Wang Tao, an economist with UBS, said in a recent research note. “It is likely that more developers will face debt payment difficulties, defaulting or restructuring their debt. Some developers are likely to downsize significantly or exit from the market, and consolidation should continue for some time to settle for much smaller property construction demand.”

While a Politburo meeting in July signalled further support for the property market, local governments and relevant ministries had only announced modest and piecemeal measures until a nationwide easing of restrictions on mortgages was announced by Beijing at the end of August, said Wang.

“This perhaps indicates a lack of consensus and coordination within the government on the right scale of support to the property sector,” she added.

The shares of Country Garden gained 3.9 per cent to HK$1.07 on Tuesday, having retreated 60 per cent so far this year.