The company, a household name in China known for its massive city-size developments of mass-market apartment towers, has been in a deep liquidity crisis in recent months as home sales slump. Default for such a high-profile builder would shatter what little confidence remains in the property sector and could spur a domino effect of creditor repayments.
Its troubles have prompted a spate of support measures from Beijing, including lowering mortgage down payments and loosening loan rules. But it is still facing a series of financial deadlines, and investors are concerned its cash position is nearing exhaustion.
On Monday, the developer faced a $15 million (£12.4 million) deadline to pay interest linked to an offshore bond. If it missed the payment, the principal would be due immediately, triggering cross-default terms and sending shockwaves through the debt markets. “If Country Garden misses this, we think there’s a perfect chance the company could be in a default situation,” said Sandra Chow, co-head of Asia Pacific research at CreditSights.
But the Chinese developer, whose financial woes have worsened the property sector outlook and prompted Beijing to unveil a raft of support measures, pulled back from the brink on Tuesday. It paid off the overdue interest on the two-dollar bonds hours ahead of a grace period that expires on Tuesday, a source close to the firm said.
The move by Country Garden rekindled hope that China’s steady drip feed of policy stimulus may be starting to help stabilize the economy and stalling the property market. However, analysts caution that the developer is far from out of the woods, especially with many other developers struggling to meet debt payment obligations.
While China’s property market has been a significant drag on the economy since it fell into recession late last year, there are signs of a recovery in the sector, and officials have announced more measures to ease pressure on the sector. The latest batch of measures, which includes further relaxed lending and land use rules, are set to take effect next week.
According to analysts, despite the positive signs, China’s property sector is unlikely to see a sustained turnaround. That’s why they expect the central bank to introduce further measures to boost liquidity in the sector soon, potentially including a cut in the reserve requirement ratio for commercial banks.
Aside from the looming payment, Country Garden’s next most significant deadline is a 1 billion dollar bond that matures in January. The developer’s dollar bonds traded around 60 cents apiece at their peak earlier this year but have plunged to as low as 9 cents — deeply distressed levels. The firm is also due to make a principal payment on the bond this month, but that’s not expected to be a default trigger. The company could buy time to repay the principal on that bond by winning approval from local creditors to extend it into 2026, sources close to the matter have told Reuters.
