In China, the largest property developer, Country Garden, stands at the precipice of default unless a $15 million coupon is paid by the end of a 30-day grace period on Tuesday.
The likelihood of this non-payment was heighten following a recent warning from Country Garden about its struggle to meet offshore debt obligations. Such a default would not only have a significant impact on the company. But also trigger defaults in other bonds as per the stipulations in bond contracts.
Country Garden has experienced difficulty meeting offshore payments in recent weeks. All of which remain within their respective 30-day grace periods.
With nearly $11 billion in offshore bonds and $6 billion in offshore loans. The company now faces the possibility of undergoing one of China’s major corporate debt restructurings if a default occurs.
To grapple with this pressing financial situation. Country Garden has sought assistance from advisors at Houlihan Lokey, China International Capital Corporation (CICC), and law firm Sidley Austin.
They are task with evaluating the company’s capital structure and liquidity position to devise a comprehensive and viable solution.
Adding to the financial complexity, Kingboard Holdings, a printed circuit board maker, has taken legal action against Country Garden, seeking repayment of HK$1.6 billion ($204 million) owed by one of Country Garden’s units.
This legal action underscores the mounting financial challenges that Country Garden currently faces.
In a broader context, since 2021, around 40% of Chinese home sales developers have defaulted on their debt obligations, according to JPMorgan. Moreover, CreditSights data reveals that Chinese developers have defaulted on over $114.6 billion of the $175 billion in dollar bonds outstanding since 2021.
As more developers seek debt restructuring, offshore creditors are likely to face less favorable terms due to the increasingly uncertain outlook for China’s real estate sector.