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Country Garden liquidation petition adds to China's property woes

Published 02/27/2024, 07:46 PM
Updated 02/28/2024, 02:30 AM
© Reuters. FILE PHOTO: The company logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai, China August 9, 2023. REUTERS/Aly Song/File Photo
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By Scott Murdoch, Clare Jim and Xie Yu

(Reuters) - Chinese developer Country Garden said on Wednesday a liquidation petition has been filed against it for non-payment of a $205 million loan, clouding its debt revamp prospects and undermining Beijing's effort to restore confidence in the property sector.

Country Garden said in a regulatory filing to the Hong Kong Stock Exchange it would "resolutely" oppose the petition, which was filed by a creditor, Ever Credit Limited, a unit of Hong Kong-listed Kingboard Holdings.

A court hearing had been set for May 17. Kingboard did not immediately respond to Reuters request for comment.

Country Garden's Hong Kong shares were trading down 11% in the afternoon trade on Wednesday, compared with a 1.3% loss for the benchmark Hang Seng Index. The stock has lost over 70% of its value over the past 12 months.

The petition is likely to revive homebuyer and creditor concerns about the Chinese property sector's debt crisis at a time when Beijing is trying to boost confidence in the industry that accounts for a quarter of China's GDP.

A liquidation of Country Garden would exacerbate the real estate crisis, put more strain on its onshore lenders, and could delay the prospect of a recovery of not only the property market but the overall Chinese economy.

The petition comes a month after China Evergrande (HK:3333) Group, the world's most indebted property developer with more than $300 billion in liabilities, was ordered to be liquidated by a Hong Kong court.

Evergrande now faces a complicated restructuring process that some investors think could last more than a decade.

China's property sector, a pillar of the world's second-largest economy, has lurched from one crisis to another since 2021 after a regulatory crackdown on debt-fuelled construction triggered a liquidity squeeze.

A string of developers have defaulted on their repayment obligations since then, and many of them have either launched or are in the process of starting debt restructuring processes to avoid facing bankruptcy or liquidation proceedings.

By filing liquidation petitions, creditors are "applying pressure" on the defaulted developers to come up with meaningful restructuring plans or risk being liquidated, said Nicholas Chen, an analyst with CreditSights.

"Having said that, even if (Country Garden) was liquidated, we doubt that offshore creditors would receive much recovery proceeds given the structural subordination of offshore bondholders and that most of the developer's assets are onshore."

"RADICAL ACTIONS"

China's new home prices continued to fall in January. Though its biggest cities saw some stabilisation, the nationwide downward trend persisted despite Beijing's efforts to revive demand.

Many would-be homeowners have been putting off purchases as indebted developers delay or suspend construction on new housing projects.

Country Garden's debt restructuring process, which gathered momentum in recent weeks with its $11 billion offshore debt deemed to be in default, could be clouded by the liquidation petition if it makes other creditors think twice about settling.

The developer has appointed KPMG and law firm Sidley Austin as advisers to examine its capital structure and liquidity position and formulate what it called a "holistic" solution.

Last October, Country Garden missed a $15 million bond coupon repayment, and a so-called ad hoc bondholder group was formed consisting of international creditors. It is not known if restructuring talks have started.

The developer had total liabilities of 1.36 trillion yuan ($188.9 billion) as of the end of June 2023, close to its 1.43 trillion yuan of total assets.

"Country Garden has taken way too long, messing around with switching advisers and wasting time, so it's no surprise people lose their patience and would rather liquidate them," a Country Garden dollar bond investor told Reuters.

The investor could not be identified as they were not permitted to speak to the media.

Country Garden said in its filing that it would continue to "proactively communicate and work with its offshore creditors on its restructuring plan" as it aimed to announce terms to the market as soon as practicable.

"The radical actions of a single creditor will not have a significant impact on our company's guaranteed delivery of buildings, normal operations and the overall restructuring of overseas debts," it said in statement to Reuters.

Investment holding firm Kingboard in October became one of the first known companies to take legal action against Country Garden when its unit Ever Credit, which is owed HK$1.6 billion ($204.5 million), issued a statutory demand seeking repayment.

Earlier this year, Country Garden's top management warned that China's property market would remain weak in 2024 and the company could face more, "severe" challenges.

Country Garden has also stepped up disposals of its assets offshore recently to raise funds, selling its stake in its last Australian project last month and putting a residential development in East London up for sale.

© Reuters. A construction site of residential buildings by Chinese developer Country Garden is pictured in Tianjin, China August 18, 2023. REUTERS/Tingshu Wang/File Photo

($1 = 7.8244 Hong Kong dollars)

($1 = 7.1989 Chinese yuan renminbi)

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