The Chinese property sector is currently on edge as Country Garden, the country’s largest privately-held property development firm, appears to have defaulted on its massive offshore debt.
As the working day drew to a close on Tuesday, October 17th, Country Garden failed to meet the $15-million coupon payment deadline.
As of 5:00 PM local time in Hong Kong on Wednesday, October 18th, Country Garden has nearly $11 billion in offshore bonds. In this case, the default could mark the beginning of one of the largest corporate debt restructuring measures in the history of Chinese real estate.
In a statement made earlier in the day, Country Garden officials declared that they would not be able to meet the bulk of its debt obligations overseas. In this case, the company is in the process of seeking a reasonable solution to the issue.
However, rather than allaying the fears in the sector, this statement only served to fuel greater worry, particularly over how this situation would trigger cross defaults among other bond contracts previously signed by Country Garden.
An Ominous Situation
As it defaults, Country Garden appears to be headed in the same direction as another fallen property titan, China Evergrande.
The latter’s chairman is currently the focus of a government investigation, following the company’s default in 2021 and its declaration of bankruptcy in August of this year.
However, some industry watchers point out that, while Evergrande failed all three of the debt ratio requirements demanded by the government, Country Garden has actually complied with all of them. This makes it one of the few big property firms to do so.
Not the Only One
2023 has been a rough year for the property development industry in China. This year has seen numerous development firms slide into default, as these have been unable to resolve liquidity issues that have plagued them since the introduction of government measures for dealing with the industry’s massive debt problems back in 2021.
As such, this poses a serious issue for the nation’s economy. To date, property development makes up around 25% of economic activity and its ongoing financial crisis has seriously impeded economic growth.