Country Garden, one of China’s largest real estate companies, is facing a potential crisis in its capital chain, raising concerns about the stability of the Chinese property market. The company’s troubles began when it encountered unexpected problems with two US dollar bonds, each worth $500 million. The creditors did not receive the required interest payment of $22.5 million, leading to speculation that Country Garden may undergo bond restructuring. This news has caused a significant drop in the company’s stock and bond prices.
On August 10, Country Garden issued a profit warning, announcing a projected net loss of 45 billion to 55 billion yuan for the first half of 2023. The company’s president, Mo Bin, stated that Country Garden is facing its greatest difficulty since its establishment and emphasized the importance of ensuring the company’s cash flow and actively seeking financing options.
The trading of 11 bonds under Country Garden was suspended on August 14, involving a total of 15.7 billion yuan. The company will now enter into negotiations with creditors to seek debt restructuring.
Some analysts are comparing Country Garden’s situation to that of Evergrande, another major Chinese real estate company that experienced a severe financial crisis. However, experts argue that Country Garden has been more cautious in its operations and has avoided the “three red lines” that contributed to Evergrande’s downfall. The company’s asset-liability ratio is healthier, and its losses may be smaller compared to Evergrande. Furthermore, Country Garden has demonstrated stable financial performance in recent years, making it more likely to survive the current crisis.
Despite these positive factors, Country Garden’s net loss for the first half of 2023 is a cause for concern. It attributes the loss to the downturn in the real estate industry and foreign exchange fluctuations. The recent meeting of the Political Bureau of the CPC Central Committee, where real estate policies were discussed, indicates a potential loosening of regulations in the industry. However, the desolation of the real estate market is evident, with a significant decline in new home sales in major cities.
Sales stagnation remains the main challenge for real estate companies like Country Garden. The future of the company will largely depend on its ability to navigate through this difficult period and secure additional financing options.