Hong Kong/London CNN –
Country Garden warned Wednesday it could default on its huge debts as it posted a loss of 51.5 billion yuan ($7 billion) in the first six months of the year.
The company, which was China’s biggest residential developer last year, said it was alarmed by the depth and persistence of the downturn in the real estate market, especially in smaller Chinese cities, and had failed to react fast enough.
“The company felt deep remorse for the unsatisfactory performance,” it said in a filing to the Hong Kong Stock Exchange.
Country Garden confirmed earlier this month that it had not paid interest to some of its bond holders, and that the group could default “if the company’s financial performance continues to deteriorate in the future”.
“All of the above… indicate the existence of material uncertainties that may cast significant doubt on the group’s ability to continue as a going concern,” the filing said.
The beleaguered real estate giant is grappling with a liquidity crisis that some fear could spread to China’s wider economy and even spread overseas.
Guangdong-based company Foshan said Earlier on Wednesday it planned to issue 270 million Hong Kong dollars ($34.4 million) of new shares to Hong Kong-based laminate maker Kingboard Holdings in exchange for debt due to be repaid.
The announcement came on the same day that a major Chinese city, Guangzhou, Mortgage norms for home buyers were eased to support the distressed property sector.
On Monday, the company said its $100 billion project in Malaysia, its largest overseas development, is “operating normally”, adding that its operations in the region are “safe and stable”. The announcement, along with China’s latest measures to support the sector, gave a brief boost to Country Garden shares in Hong Kong.
But the stock is still down 67% this year, and the company is getting squeezed.
Total liabilities on Country Garden are approximately $200 billion. It faces mounting pressure to pay down its debt — it has about 31 billion yuan ($4.3 billion) in bonds maturing by the end of 2024, according to Moody’s.
Earlier this month, reports of the company defaulting on two dollar-denominated bonds spooked the market. And last week, the company extended the deadline from Aug. 25 to Aug. 31 for bondholders to vote on a plan to increase payments on 3.9 billion yuan ($530 million) of bonds.
Investors worry that a default on debt payments by the company could further blow already weak investor confidence as Beijing tries to rescue the ailing sector, which is vital to China’s economic growth.
On August 10, Country Garden acknowledged that it was facing the “greatest difficulty” since its founding in 1992, citing deteriorating sales and a difficult refinancing environment.
The news triggered a selloff in the company’s securities, forcing it to temporarily suspend trading in 11 of its onshore bonds. Chinese state media reported At that time the developer was expected to start debt restructuring soon.
On Wednesday, Guangzhou became the first major Chinese city to announce an easing of mortgage rules aimed at encouraging home buying.
According to a notice from the city government, under the new rules, people who have taken a mortgage earlier can be considered as first-time home buyers and enjoy preferential loans.
The move came a few days later Three Chinese regulators issued a joint statement allowing local governments to ease mortgage restrictions as part of the central government’s efforts to revive buyer demand.
Among other efforts, housing and tax authorities jointly said on Friday that they would extend the personal income tax exemption for those who buy new homes within a year after selling previous properties.