By Clare Jim
HONG KONG (Reuters) -Country Garden said on Tuesday it has not paid two dollar bond coupons due on Aug. 6 totalling $22.5 million, confirming market fears that the biggest privately owned developer in China is slipping into repayment troubles.
The bonds in question are notes due in Feb 2026 and Aug 2030, the firm told Reuters. Both payments have 30-day grace periods, according to investors citing prospectuses.
China's giant property sector has seen a string of debt defaults by cash-squeezed developers since late 2021, with China Evergrande Group, the world's most indebted property developer, at the centre of the crisis.
Country Garden, which had total liabilities of 1.4 trillion yuan ($194 billion) at the end of 2022 and large exposure in lower-tier cities, told Reuters in a separate statement that it is improving capital arrangements to ensure the legal rights of creditors.
It added its usable cash had declined, showing "periodic liquidity stress", due to a deterioration in the sales and refinancing environment, and the impact from various fund regulations.
"The company has been holding fast, but it's hard to see the dawn light," it said, highlighting efforts to ensure home deliveries and debt repayments as the industry grapples with "unprecedented difficulties".
Country Garden's Hong Kong-listed shares fell 14.4%, their biggest daily drop since December, and most of its dollar bonds sank to below 10 cents on the dollar, according to Duration Finance.
Its September 2025 bond traded at 9.21 cents on the dollar at 0827 GMT, down from 14 cents on Monday, while Shenzhen trading of an onshore bond was temporarily suspended after it plunged 28.6%.
"The fact that (Country Garden) is struggling to address an interest payment, rather than a full bond principal repayment, perhaps underscores its very tight liquidity," said CreditSight analyst Nicholas Chen.
"Given (its) size, we think such an event will have a negative spillover effect for the sector, particularly on investor sentiment towards other privately-run developers that are still afloat."
Property shares have been volatile in recent weeks with contagion worries sparked by liquidity concerns over Country Garden resurfacing and state-backed Sino-Ocean Group seeking to extend bond payments, while investors look to policymakers for more drastic support for the sector.
Country Garden's contracted sales dropped 30% to 128.8 billion yuan in the first six months of this year, amid an accelerating drop in the broader property sector.
Moody's (NYSE:MCO) downgraded the firm to "B1" last week, highlighting its still-constrained funding access and sizable maturing debt over the next 12-18 months.
In September, Country Garden has a 5.8 billion yuan bond maturing and a 48 million yuan coupon due, as well put options on a further 3.4 billion yuan of paper.
Offshore, a HK$3 billion ($384.2 million) convertible bond matures in December and a $1 billion dollar bond in January.
Last week, Country Garden aborted a $300 million share placement at the last minute saying it had not reached a 'final agreement' for the deal to go ahead.
It also warned that it would post an unaudited net loss for the six months ending June 30, compared with a net profit of 1,910 million yuan a year earlier.
($1 = 7.2117 Chinese yuan renminbi)
($1 = 7.8088 Hong Kong dollars)