China's Country Garden Extends Onshore Bonds to Avoid First Local Default

Country Garden Holdings, China's largest property developer, has secured approval from bondholders to push back payments on three yuan-denominated bonds, staving off its first local default for now. The company had missed initial deadlines from March 12 to April 12 for coupon and principal installment payments on these bonds, but noteholders have agreed to extend the payments to September. "This approval effectively resolved the immediate repayment risk of the company, and provided a valuable window for the company to raise funds for repayment," Country Garden said in a statement.

This marks the second time Country Garden has stretched payments on these bonds, suggesting its liquidity remains weak amid an 83% slump in home sales last month. The developer had previously extended the maturities of eight onshore bonds worth 10.8 billion yuan ($1.49 billion) by three years in September 2023. Two of the payments on the three bonds in question had already entered a 30-day grace period earlier this month before the extension was granted.

Country Garden's struggles come as China's property sector has been mired in a debt crisis since mid-2021, leaving many companies in default and homes uncompleted. The developer has already defaulted on $11 billion in offshore bonds and is currently working on a restructuring plan to address this offshore debt. Country Garden is also fighting a winding-up petition filed by a creditor in a Hong Kong court, with the first hearing scheduled for May 17. The company will need to show progress on its offshore restructuring at this hearing to fend off a potential liquidation order.

Why this matters: Country Garden's ability to avoid a local default highlights the ongoing challenges faced by China's property developers as they navigate a prolonged debt crisis. The sector's troubles have far-reaching implications for China's economy, financial stability, and the livelihoods of countless homebuyers and construction workers.

The extension on the onshore bond payments provides critical breathing room for Country Garden as it works to raise funds and address its debt issues. However, the company still faces significant obstacles, including the need to restructure its defaulted offshore bonds and defend against a winding-up petition in Hong Kong. "The Chinese property sector has been in a debt crisis since mid-2021, leaving many companies in default and homes uncompleted," Bloomberg News reported. The outcome of Country Garden's efforts to manage its debt will have major implications for the broader Chinese property market and the millions of people it impacts.

Key Takeaways

• Country Garden, China's largest developer, secured approval to delay bond payments.
• This is the second time Country Garden has stretched payments on these bonds.
• Country Garden has defaulted on $11 billion in offshore bonds and faces a winding-up petition.
• The extension provides breathing room as Country Garden addresses its debt issues.
• The outcome will have major implications for China's property market and homebuyers.