Country Garden faces second debt challenge in days as offshore payment comes due

By Xie Yu

HONG KONG (Reuters) -China’s largest private property developer, Country Garden, faces a deadline for making interest payments on two U.S. dollar bonds on Tuesday, just days after dodging an onshore debt default with a last-minute payment extension deal.

Country Garden failed to pay coupons on the bonds totalling $22.5 million due on Aug. 6, exacerbating market fear of the developer’s cash situation.

Both payments had 30-day grace periods, ending on the global Tuesday. But since Aug. 6 was a non-working Sunday, the developer may wire funds a day or two after the “technical” grace period, bondholders said.

The deadline looms after Country Garden on Friday won approval from onshore creditors to extend a private bond worth 3.9 billion yuan ($536 million).

Failure to make the latest payments raises the risk of default and demand by holders of other dollar bonds to accelerate payments, bondholders and lawyers said.

Country Garden did not immediately respond to a request for comment.

The developer’s share price fell as much as 5% in early Tuesday trade, while Hong Kong’s Hang Seng Mainland Properties Index was down 2.5%. Chinese property shares had rallied on Monday.

Country Garden had not missed a debt payment obligation, onshore or offshore, until it failed to pay coupons on the two-dollar bonds last month after slowing demand for new homes translated into tighter cash flow.

As well as the payments due on Tuesday, Country Garden has about $162 million of offshore bond interest payments due during the rest of the year, showed data from researcher CreditSights.

Country Garden’s predicament highlights the fragile state of China’s real estate sector, which accounts for roughly a quarter of the world’s second-largest economy and whose situation has deteriorated since a government campaign against high leverage began in 2021.

Making matters worse is a lacklustre post-pandemic economic recovery. Services activity expanded at its slowest pace in eight months in August, a private-sector survey showed on Tuesday, as weak demand continued to dog the economy and stimulus measures failed to meaningfully revive consumption.

Latest stimulus included lowering existing mortgage rates and preferential loans for first-home purchases in big cities.

“With domestic demand weak and house prices on the slide in smaller Chinese cities in particular, there are still worries about the fragility of the real estate sector,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown, U.K.

“Stimulus efforts to increase mortgage lending are welcome but a much larger package of support is likely to be needed to restore more confidence in the sector, and put exposed property firms on a firmer footing.”

(Reporting by Xie Yu in Hong Kong and Siddarth S. in Bengaluru; Writing by Sumeet Chatterjee; Editing by Christopher Cushing)