Country Garden (CTRYF:PNK), a leading Chinese developer, is navigating through a challenging financial landscape marked by its inability to meet certain payment obligations. The company has publicly acknowledged its struggle to pay onshore coupons due this Thursday but remains committed to settling these payments, along with any incurred interest, by May 13, within the grace period. This situation arises amidst the backdrop of Country Garden defaulting on $11 billion in offshore bonds last year and extending repayments for onshore bonds. The company is currently grappling with the immediate task of managing two coupons totaling about 65.95 million yuan ($9.1 million), which are due imminently. These financial obligations are linked to medium-term notes issued in May of the previous year, a period that closely precedes the offshore bond default and aligns with a Beijing-led financial support initiative launched in August 2022. Should Country Garden fail to meet its payment obligations by the end of the grace period, the state-owned China Bond Insurance Co is poised to provide a safety net through an unconditional and irrevocable joint liability guarantee.
In an effort to navigate its financial difficulties, Country Garden has signaled to its offshore creditors its plans to introduce a debt restructuring proposal in the latter half of this year. This strategic move is aimed at circumventing a liquidation petition, a scenario that places the company in a precarious position, especially considering its status as China’s largest private developer. The developer’s financial challenges are further compounded by a liquidation petition in Hong Kong related to the non-payment of a $205 million loan, with a court hearing set for May 17. This situation is emblematic of the broader debt crisis that has beleaguered the Chinese property sector since mid-2021, leading to defaults and liquidation orders across the industry, including the high-profile case of China Evergrande Group.
Amid these challenges, Country Garden is proactively engaging with its creditors, aiming to present a preliminary restructuring proposal to an ad hoc group of bondholders as early as June. This initiative is part of a broader strategy to involve a wider group of creditors in the restructuring process by the third quarter. The company is currently undertaking due diligence to accurately assess its business health, a critical step in formulating a viable restructuring proposal. Although formal negotiations with creditors have yet to begin, Country Garden is in the process of sharing data and information with its bank lender group and other creditors, laying the groundwork for future discussions on restructuring terms.
The urgency for Country Garden to address its financial woes is underscored by the looming liquidation petition. In response, the company is actively collaborating with creditor groups and their advisors, striving to expedite the due diligence process and initiate discussions on restructuring terms. Additionally, Country Garden has engaged Kroll to conduct a liquidation analysis for the lawsuit, aiming to determine potential recovery rates for creditors. This analysis is crucial as the company’s shares in Hong Kong have been suspended since April 2, pending the publication of its 2023 results, which were delayed as the firm sought additional information for accurate accounting estimates and judgments. In a recent development, Country Garden secured bondholders’ approval to postpone payments on three onshore bonds until September, providing the company with some breathing room to raise necessary funds.
The financial metrics of Country Garden reflect its current market position and the challenges it faces. Trading at $0.1, with fluctuations between $0.04 and $0.27 over the past year, the company’s market capitalization stands at approximately $2.77 billion. With a trading volume of 40,000 shares on the PNK exchange, these figures underscore the volatility and investor sentiment surrounding Country Garden’s stock amidst its ongoing financial struggles and efforts to stabilize its operations through strategic debt restructuring and financial management initiatives.
