China's Country Garden indicates default, warns of difficulty in meeting debt obligations

By P.R. Venkat

Country Garden Holdings (HK:2007) warned that it wouldn't be able to meet all its offshore payment obligations on time as the Chinese property developer struggles to raise cash with sales spiralling lower.

The company said Tuesday that it "faces significant uncertainty regarding asset disposals, and its liquidity position is expected to remain very tight in the short- to medium-term."

It said that it hadn't made a 470.0 million Hong Kong dollar (US$60.0 million) payment and more non-payments could lead to creditors demanding accelerated payments or taking enforcement action.

China's property sector has been severely stressed recently due to falling property sales and weak consumer confidence. This downturn has led to defaults by several developers, including debt-laden China Evergrande Group (HK:3333) and Sunac China Holdings (HK:1918).

On Monday, bond investors said that Evergrande's 11th-hour cancellation of a restructuring affecting more than US$19 billion worth of international debt could lead to a messy collapse and have "a catastrophic effect" on the sector.

Country Garden said Tuesday that in the first nine months of the year, its contracted property sales fell about 44% on year to 154.98 billion yuan (US$21.25 billion).

Available funds are depleted and its sales and financing remain under pressure, the developer added. Due to current market conditions, it will be hard to generate cash via asset sales, it said.

"Consequently, the group's cash position remains under significant pressure," it said.

Country Garden has tapped China International Capital and Houlihan Lokey as financial advisors to help evaluate the group's capital structure and liquidity.

"The company will actively pursue offshore liability management measures and develop a holistic solution in a fair and equitable manner to achieve a sustainable capital structure," it said.

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10-09-23 2214ET

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