China’s largest private property developer, Country Garden (2007. HK), won approval from its creditors to extend repayments on six onshore bonds by three years, two sources familiar with the matter said on Tuesday, sending shares up as much as 10%. A failure to pay the debt this month would have undermined fragile hope in financial markets that a steady drip feed of policy stimulus was starting to stabilize the country’s indebted property sector and economy, according to investors.
The reprieve comes after the Chinese government launched a new round of measures, including lowering existing mortgage rates and offering preferential loans for first-home purchases in big cities to help revive demand for housing in the world’s second-largest economy. Investors are closely monitoring whether the measures might be enough to reinvigorate the property sector, which accounts for a quarter of the country’s economy and has lurched from one crisis to the next since Beijing cracked down on developers’ debt-fuelled building boom in 2021.
The extension means the developer can delay repaying a principal of $540 million on a yuan-denominated bond maturing on Saturday until 2026, the sources said. But it will still have to pay interest on the bond as initially scheduled. The extension was the result of negotiations between Country Garden and its creditors, the sources added. The developer still needs to respond to a request for comment.
Traders said prices for Country Garden’s dollar bonds rose 2 points after the news, reflecting expectations that the company will make coupon payments. They added that other onshore bond payments remain due this year, and several offshore debt maturities are also expected to come up in the next 12 months, which could trigger creditor demands for early payment.
A default by Country Garden, which has the most significant market share in China’s top-tier real estate markets, would likely send jitters among homebuyers and further slow economic recovery. The developer’s troubles have sparked fears of a domino effect similar to the US mortgage lender Lehman Brothers collapse in 2008, which triggered global economic turmoil. It has forced a handful of other developers to stop construction projects and cut back on customer lending, sending a wave of property stock price declines across Asia.
While the latest batch of measures is unlikely to completely revive confidence in China’s struggling property sector, which contributes around a fifth of the economy, they may be enough to avert a crisis more significant than the one that led Evergrande to file for bankruptcy in the United States in late 2021. But Evergrande had four times the number of projects as Country Garden.
