China's top property developer warns it might not repay its international debt

By Louis Goss

Country Garden, China's largest property developer, on Tuesday warned it is struggling to repay its overseas debts due to plunging sales as a result of the worsening crisis in China's property market.

The Guangdong-based property developer told investors it had already failed to make a HK$470.0 million ($60 million) debt payment as it warned that "adverse market conditions" could leave it unable to pay its debts going forward.

Shares in Country Garden (HK:2007) fell 11% in trading Tuesday having lost 53% of their value over the previous year. Shares in rival developer Evergrande (HK:3333), which defaulted on its international debts in 2021, fell 4%.

The announcement, published on the Hong Kong Stock Exchange, puts Country Garden alongside a growing list of Chinese developers that have now failed to repay loans amid a major slump in China's housing market.

The crisis in China's real estate market started in 2021 following the Chinese government's decision to introduce new regulation aimed at reining in the country's heavily-indebted property sector, which in turn left them unable to complete pre-sold homes.

Now, the downturn, which has been worsened by a lack of confidence from buyers, has spiraled into a crisis that has caused dozens of major property developers to default on their international debts, including real estate giant Evergrande.

Country Garden said its lack of liquidity is the result of "remarkable pressure" on its sales that saw it record RMB 16.17 billion ($860 million) worth of sales in September 2023 -- -- a figure 80.7% lower than in September 2022 and 86.5% lower than in September 2021.

The firm, which was founded by peasant-turned-billionaire Yang Guoqiang in 1992, warned possible struggles in selling off its assets and the wider sales slump mean its liquidity position is now "expected to remain very tight in the short- to medium-term."

The real estate company warned that "prevailing market conditions" have hindered its ability to raise cash, including through asset disposals, as it warned its "cash position remains under significant pressure."

The company, which according to its financial statements had $187 billion worth of liabilities in June 2023, said it now expects this lack of liquidity will mean it is unable to "meet all of its offshore payment obligations" as it called for "patience" from its creditors.

The International Monetary Fund on Tuesday warned Country Garden's worsening financial position is a sign the crisis in China's property market is now "spreading to stronger developers" despite efforts to combat the growing slump.

The IMF report said China's property crisis risks spilling over into the global economy, as it warned the real estate slump is also putting pressure on China's local government revenues from land sales, placing added pressure on the country's "already fragile public finances."

-Louis Goss

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10-10-23 0602ET

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