China’s largest private property developer warned on Wednesday (Aug 30) of default risks if its financial performance continues to deteriorate, and said it “felt deeply remorseful” for its record loss in the first half.
Country Garden posted a net loss between January and June of 48.9 billion yuan (US$6.72 billion), versus a 6.7 billion yuan net loss in the second half of 2022 and a 612 million yuan net profit in the first half of 2022.
The results come as Chinese authorities take steps to revive the troubled property market, which accounts for roughly a quarter of the economy. The sector’s woes have raised concerns that it could have a destabilising impact on an economy already weakened by rising unemployment and falling demand.
The property sector has seen many company defaults since late 2021, resulting in uncompleted homes and unpaid suppliers and creditors.
The liquidity stress in Country Garden became public this month after it missed two dollar-coupon payments – which the developer confirmed for the first time on Wednesday – and sought to extend an onshore private bond repayment, deepening contagion fears.
“If the financial performance of the group continues to deteriorate in the future, the group might not be able to fulfil the financial covenants of these borrowings, which may result in default in these borrowings and cross-default in certain other borrowings,” the developer said in a filing. It added it will consider debt management measures to cope with the remaining overseas debts coming due through the end of June next year, including negotiations with onshore banks on renewing and extending existing loans.
Country Garden said its revenue in the first half rose 40 percent from a year earlier but its cost of sales surged 73 percent, while total liabilities were unchanged from the end of 2022, at 1.4 trillion yuan.
Its total interest-bearing debts decreased to 257.9 billion yuan, of which 108.7 billion yuan would be due within 12 months, while it had total cash of 101.1 billion yuan.
“The company feels deeply remorseful for the unsatisfactory performance,” it said.
Some offshore creditors of Country Garden are in talks with a New York-based law firm and are considering options including legal ones, by forming a group if the company seeks to restructure its debt.
