Embattled developer Country Garden is currently facing a critical situation as creditors vote on whether to extend the maturity of its debt. The voting, set to conclude by 10 p.m. Hong Kong time, will determine whether Country Garden’s proposal to extend repayments of eight onshore bonds by three years is approved.
Country Garden had previously won approval on September 1 to extend payments for a 3.9 billion yuan onshore private bond. However, the company is still facing liquidity pressure as its sales have plummeted. With 108.7 billion yuan worth of debts due within a year and around 101.1 billion yuan in cash as of end-June, the developer is in a tight spot.
It is worth noting that Country Garden is one of the few large Chinese developers that have managed to avoid defaulting on debt obligations so far. However, its current situation raises concerns about the country’s real estate crisis. A default by Country Garden could have a ripple effect, putting strain on struggling banks, and delaying the recovery of the property market and the overall Chinese economy.
Chinese regulators are closely involved in the situation due to the potential contagion risk to other sectors and local governments. To mitigate the impact, Chinese authorities have already implemented support measures for the heavily indebted property sector. These measures include lowering mortgage rates and providing preferential loans to developers.
The property sector is a vital component of the Chinese economy, accounting for a quarter of its GDP. The recovery of the sector is crucial for Beijing’s plans to boost economic growth. In line with this goal, new bank lending in China quadrupled in August, as the central bank aims to support economic growth amid soft demand.
The news of the government’s policies to boost investor confidence in China stocks had a positive impact. However, shares in Country Garden fell by 7.5% ahead of the voting result, reflecting concerns about the company’s future.
The outcome of the creditors’ vote will have far-reaching implications not only for Country Garden but also for the broader Chinese economy. Stakeholders are eagerly awaiting the results to determine the next steps in this high-stakes situation.
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