ALBAWABA – China may have averted a potentially catastrophic financial meltdown in the debt-laden real estate sector, as one of the nation’s largest property developers Country Garden narrowly avoids default, news agencies reported Tuesday.
The struggling Chinese developer has made multi-million-dollar interest payments on two outstanding loans, Bloomberg reported Tuesday, narrowly avoiding what would have been its first default.
The Dollar Bond Interest payments, worth $22.5 million, were made during the 30-day grace period, as the firm in August said it was unable to make them.
A general view shows a development of property developer Country Garden in Beijing on August 15, 2023. (Photo by Pedro PARDO / AFP)
Bloomberg’s sources, who asked to remain unnamed, said the payment was made in the final hours of the grace period, ending September 5-6.
These payments buy Country Garden time as it tries to sort through $187 billion of liabilities, a symptom of a debt crisis facing the wider property sector in China, according to Agence France-Presse (AFP).
Although China may have averted a meltdown right now, the crisis is far from over.
Country Garden narrowly avoids default as shares and bonds trade at cents on the dollar
Country Garden bonds still trade at deeply distressed levels around $0.09-0.14 on the dollar, despite recent gains, according to Bloomberg.
The fact that they are still trading suggests that investors anticipate an eventual restructuring or liquidation rather than a state rescue. Meanwhile, the company share price was down about 1 percent, Reuters reported, paring some of its losses from earlier today.
This photo taken on June 15, 2023 shows the headquarters of China's developer Country Garden Holdings in Foshan, in China's southern Guangdong province. (Photo by AFP)
One of China's biggest builders, Country Garden had racked up $196 billion in debts by the end of 2022, and last week reported a $6.69 billion loss for the first half of the year.
The company is estimated to "not have sufficient internal cash sources to address its upcoming offshore bond maturity", according to Moody's.
Had Country Garden not made the outstanding interest payments, the company would have faced the prospect of becoming the biggest Chinese real estate firm to default since rival Evergrande, in 2021.
