New Delhi: One of China’s biggest property developers, Country Garden, has been “deemed” to be in default on a dollar bond for the first time ever, media reports said Wednesday. This comes at a time when the broader real-estate market slowdown continues to shake the world’s second-largest economy.
On 18 September, Country Garden, one of the world’s most indebted property developers, missed a deadline on one of its dollar bond interest payments, Bloomberg reported. This came after the 30-day grace period for the final payment of the $15.4 million dollar bond interest passed with no word from the Country Garden, the report said.
It also cites a notice to the company’s holders from the trustees of Citicorp International Ltd, a wholly-owned subsidiary of Citigroup. Inc and the creditors in the transaction. In its notice, Citicorp states that the failed payment “constitutes an event of default”, according to the Bloomberg report.
This comes a week after the company said that it expects to be unable to meet all its obligations, sparking discussions of a default.
Country Garden was China’s largest property developer by contracted sales for many years before falling to seventh in 2023, according to Bloomberg. As ThePrint reported earlier, the company has been struggling for a while, reporting $6.7 billion in losses during the first half of 2023.
The company’s overall debt is reportedly above $150 billion. In a regulatory filing for six months that ended in June 2023, it warned of the possibility of default if the situation deteriorated any further.
The threat of such a default loomed in August when Country Garden had failed to make payments on $22.5 million on two US dollar bonds on time. However, this was eventually averted when the company reportedly made the payments during the 30-day grace period.
The latest development also comes over two months after China’s Evergrande Group, once its second-largest firm, filed for bankruptcy.
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Beijing’s attempts to revive the property market
China’s property market and allied industries account for nearly 20 percent of the Gross Domestic Product (GDP) of the country, Bloomberg said in its report Wednesday.
According to an analysis by the Financial Times on 23 October, over half of the 50 largest property developers in China in 2020 have gone into default.
Country Garden’s total contracted sales from January to September of this year amounted to $21.2 billion — down 43.9 percent during the same period in 2022 and down 65.4 percent during the same period in 2021 — the Tokyo-based Nikkei Asia reported on 18 September. The report added that the company’s contracted sales fell by 81 percent during September of this year compared to the same period last year.
This echoed a trend in China’s overall property investment — according to a Bloomberg report on 18 October, this fell by 9.1 percent during the first nine months of the year, an indication of the lack of confidence in real estate prevailing across the country.
Since June, Beijing has taken a slew of measures to revive its flagging real estate market, according to Reuters on 17 October. This includes cutting the amount of money that reserves banks are expected to hold in an attempt to inject liquidity into the market, easing borrowing rules for homebuyers, allowing preferential loans for first-time home buyers regardless of credit scores, and guidelines for the planning and construction of affordable housing.
“Preferential loans” are loans where interest is payable at a rate lower than the normal commercial rate of loan interest set by the government.
But despite such market interventions, media reports suggest that there has been little sign of recovery of the market. According to the Reuters report, home prices continued to fall for a third month running in September, down 0.2 percent from August. September is considered to be the peak home-buying season, the report said.
(Edited by Uttara Ramaswamy)
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