Embattled real estate developer Country Garden Holdings Co. has increased its warnings that it is heading for its first default ever. In addition, it has now hired restructuring advisors, in the strongest indication yet that the firm is about to become one of the biggest debt restructuring projects ever in China.
In a filing Tuesday, the developer said that it, “expects that it will not be able to meet all of its offshore payment obligations when due or within the relevant grace periods, including but not limited to those under the U.S. dollar notes issued by the company. Such non-payment may lead to relevant creditors of the Group demanding acceleration of payment of the relevant indebtedness owed to them or pursuing enforcement action.”
The firm also said that it has missed a due payment of HK$470 million ($60 million) “under certain of its indebtedness.” In recent weeks, the developer has also missed initial deadlines to pay interest payments on several bonds, which will see the grace periods close later this month. According to a report by Bloomberg, the company has $11 billion in offshore bonds outstanding.
Country Garden, which was once the largest real estate developer in China, has been overtaken by a property debt crisis, having missed coupon payments previously. Although the payments were eventually made within the grace period, the company has warned in recent months that it may default if its economic conditions do not change. The firm’s debt issues are sparking fears of a broader contagion spreading to other areas of the nation’s real estate sector, and possibly spreading to the rest of the Chinese economy.
As the company has seen its financial woes grow, signs have grown of potential homebuyers losing confidence in the builder. In September, sales were down roughly 81% from the same period one year prior. The firm noted that despite attempts by authorities to shore up the market, there has not been any material improvement in property sales in the sector.
The developer’s problems are deep seated, due to its status as one of the most heavily indebted developers. Total liabilities for the firm sit at 1.36 trillion yuan ($187 billion). Currently its dollar bonds are indicated in a range of 5 to 7 cents, which shows how little bondholders expect to recoup in an eventual restructuring.
The company has also announced it has hired advisors, which is a common step taken by distressed companies which recognize they will be heading toward a broader restructuring.
The firm announced in its filing, it had engaged China International Capital Corporation Hong Kong Securities Ltd. and Houlihan Lokey (China) Ltd. as joint financial advisers, while hiring Sdiley Austin as a legal adviser “to evaluate the capital structure and liquidity of the Group and formulate a holistic solution.”
Meanwhile creditors of the troubled developer have been in their own discussions with several financial advisors, with an eye to forming an ad-hoc group ahead of any possible off-shore debt restructuring. So far, sources say no decisions have been made by the creditors.
