Country Garden’s Top-Line Decline Should Persist As Homebuyers’ Confidence Plummets

In our view, the property market in China will see a mild rebound in sales growth in the next few years following the revival of site visits and improvement in homebuyers’ sentiment. That said, we expect housing demand to be contained by slowing economic growth and the government's restrictions on developers’ leverage and housing price inflation. As the market downturn persists, Country Garden Holdings, or CGH, should continue to post a sales decrease, which we think will negatively affect its operating cash flow. Also, CGH has seen deterioriation in balance sheet quality with a net gearing ratio of around 50%. As CGH has missed bond interest and principal payments, we think the firm needs to restructure all existing debt through negotiation with creditors to remain a going concern.