Worries of a possibly disastrous default increased on Wednesday when troubled Chinese developer Country Garden revealed a 48.9 billion yuan ($6.7 billion) loss for the first half of the year in a stock exchange filing.
Two years after the collapse of Evergrande, its precarious position has raised concerns about a collapse that could have significant effects on the Chinese financial system.
The number of active construction projects at Country Garden, which was China’s largest real estate company last year, is four times greater than that of Evergrande. Home buyers were furious when the latter recently ceased construction projects, and they protested by holding demonstrations and stopping their mortgage payments.
With liabilities of $328 billion, Evergrande is the most indebted real estate company in the world. Over the previous three years, the value of its stock has decreased by more than 99%. After a 17-month suspension, which Evergrande used to try to restructure its offshore debt, the business started trading again on the Hong Kong stock exchange on Monday.
Country Garden, one of China’s largest builders, has amassed debts of more than $150 billion and announced this month that it has missed interest payments on two loans.
Since Beijing’s implementation of the “three red lines” policy in 2020, which attempted to lower debt levels in the highly leveraged sector, it is one of the few significant homebuilders to have avoided default. Liabilities-to-asset ratios are constrained by the red lines, which also make sure businesses have enough cash on hand to cover short-term obligations in full.
The company issued a warning on Wednesday, stating that it may experience default if its financial condition “continues to deteriorate”.
Country Garden is next is size to Evergrande
The largest Chinese real estate company to fail since Evergrande in 2021 could be Country Garden if it misses a September 1 deadline for a bond payment.
Fears that the company’s cash flow issues could cause instability in China’s economy and financial system have grown.
Property and construction, which make up nearly a quarter of China’s GDP, have played a significant role in the growth of the second-largest economy in the world.
The losses suffered by Country Garden from January to June were comparable to the 45–55 billion yuan forecasts it had made in early August. The group reported a modest profit of 612m yuan over the same time last year.
In its statement to the Hong Kong stock exchange, Country Garden stated that the shrinkage of the property sector, coupled with the not yet restored confidence of the capital market, exerted mounting pressure on the company’s business operation.
It continued that it would do everything we can to improve our operating cash flow by ensuring good sales performance, working to revitalize under-performing assets, and reducing unneeded administrative costs.
Country Garden is negotiating with creditors to rearrange debt payments in order to avoid default as the earnings report was released.
According to reports, a vote by bondholders on extending repayment terms was scheduled to take place on Friday of last week but was postponed.
On Wednesday, Country Garden also suggested issuing new stock worth 255 million yuan.
According to the most recent filing, the company “tried its best” to make principal and interest payments on its debt.
Tens of thousands of people are employed by Country Garden, which Forbes lists as one of the 500 largest corporations in the world. Yang Huiyan, the company’s boss, was once Asia’s richest woman.
The struggles of Country Garden and Evergrande are further weakening the real estate market, which has already been severely affected by the epidemic and China’s economic recession. These issues deter potential homebuyers as well, which could put pressure on other real estate companies.
According to government statistics, home values declined at the fastest rate in a year in July, a symptom of the market’s fragility.
With major cities Guangzhou and Shenzhen taking steps to relax mortgage laws, authorities are taking action to strengthen the important sector.
