Country Garden’s stocks, bonds tumble after Chinese developer misses US$22.5 million coupon payments on offshore note

Country Garden Holdings, one of China’s biggest property developers by sales, tumbled in both the shares and bonds markets amid concerns about its debt problems after it missed two US dollar bond coupon payments on Tuesday.

The Foshan-based developer missed US$22.5 million in coupon or interest payments for the two offshore bonds due on Sunday and was yet to repay this amount on Tuesday, according to sources. The two notes, which are due in February 2026 and August 2030, have a 30-day grace period, according to the bonds’ prospectuses.

The developer’s shares in Hong Kong tumbled by 14 per cent to HK$1.13 on Tuesday, capping their steepest decline since December 7 last year. Country Garden’s shares have lost 58 per cent of their value this year, and are heading for a fourth straight annual decline. Its 4.98 per cent bond maturing in November 2023 slumped by 28 per cent to 28 yuan.

Country Garden’s usable cash is decreasing continually and it has faced liquidity pressure periodically because of underperforming contracted sales and a worsening refinancing environment coupled with tightened regulations, according to people familiar with the matter. Its contracted sales for July plunged by 60 per cent from a year earlier.

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The company is improving capital arragenments to ensure the legal rights of creditors, the sources said.

“Country Garden might use the 30-day grace period to repay the US$22.5 million in coupons due on August 6 on its two kung fu bonds,” said Daniel Fan and Adrian Sim, credit analysts at Bloomberg Intelligence.

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“We think Country Garden’s chairwoman might help the company by using part of a 453 million yuan [US$62.8 million] dividend payout on her stake in Country Garden Services. The unit is bringing forward its 2022 dividend payment to August 11.”

Country Garden faces about US$2.9 billion in bond repayments by the end of this year, according to data compiled by Bloomberg.

Country Garden bonds, stocks hammered over liquidity concerns

The developer has wavered in both the share and bonds markets over the past month on concerns about its ability to repay debt, and ailing contracted sales.

US investment bank JPMorgan Chase last month downgraded both Country Garden and Country Garden Services to underweight while international rating agency Moody’s this month downgraded Country Garden’s corporate family rating and senior unsecured rating to B1 from Ba3, citing a negative outlook.

“The downgrade reflects our expectation that Country Garden’s credit metrics and liquidity buffer will weaken due to its declining contracted sales, still-constrained funding access and sizeable maturing debt over the next 12-18 months,” Kaven Tsang, a Moody’s senior vice-president, said in a report on August 3.

“The negative outlook reflects uncertainties over the company’s ability to stabilise its declining contracted sales and to recover its funding access over the next six to 12 months due to the weak operating environment in low-tier cities and volatile capital markets,” Tsang added.

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