China Distress Mounts as Country Garden Tries to Dodge Default
China developer requests adding 40-calendar-day grace period
Bad debt manager Great Wall’s bonds fell by the most this year
By Bloomberg News
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China is flashing new signs of financial stress almost on a daily basis, with a property giant making fresh efforts to avoid default and a state-run bad debt manager suffering a bond slump on worries about its own health.
In the latest indication of its liquidity struggle, Country Garden Holdings Co. has proposed a grace period of 40 calendar days for a maturing yuan bond as it seeks to win creditor support to stretch payment into 2026. Meantime, China Great Wall Asset Management Co.’s dollar bonds fell by the most this year Tuesday, as analysts raised concerns over a delay in releasing 2022 earnings.
The ceaseless warning signals from credit markets are adding to broader concerns about the world’s second-largest economy, where authorities remain reluctant to adopt stronger stimulus even as an unprecedented property crisis intensifies. Signs of contagion from the housing woes have grown in recent weeks, from missed payments by one of China’s biggest shadow banks to a bond rout among Hong Kong developers.
“I see that chance of bigger collateral damage increase, but for now, I don’t see it turning into a systematic issue,” said Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group. “There are several factors mixed together, not only property sector, but the overall restructuring of the macro economy.”
Country Garden, which has property developments in almost every province in China, made the proposal for holders of the note to vote at a meeting to be held on Aug. 31 by the latest, according to a filing to the Shanghai Stock Exchange’s private disclosure platform that was seen by Bloomberg News.
The bond, which carries an original maturity date of Sept. 2, a Saturday, will effectively come due on Sept. 4.
If Country Garden were to succeed in getting the grace period, any payment within that period of the bond’s “principal and/or interest,” or securing an extension, would not trigger a default, it said in the filing.
Country Garden didn’t immediately offer comment when reached by Bloomberg News.
Former Top Builder
The latest proposal by Country Garden, whose worsening cash crunch has shaken Chinese markets in recent weeks, comes after the developer asked earlier this month to stretch payment of the bond’s 3.9 billion yuan ($535 million) of outstanding principal into 2026. A payment miss by China’s former top builder would impact the housing market even more than China Evergrande Group’s late 2021 default as it has four times as many projects.
Bondholders are set to vote on the grace period proposal at a meeting between Aug. 29 and 31, according to the filing detailing the agenda. Country Garden earlier also pushed back the deadline to Aug. 31 for a vote on the bond extension request from Aug. 25 as originally scheduled.
Elsewhere, Great Wall Asset Management, one of China’s big four bad banks, saw its dollar bonds sold off Tuesday.
The declines came as a BNP Paribas trading desk note seen by Bloomberg News said that covenants of a bond due 2027 require the security’s trustee to receive audited financials within 180 days of a year’s conclusion, with a 60-day grace period, or there could be a covenant breach.
Great Wall and peer China Huarong Asset Management Co. in recent years have delayed publishing annual reports, raising concerns about the sector’s health in the wake of the pandemic and prompting selloffs in their dollar bonds. Huarong received a 42 billion yuan state-orchestrated bailout after revealing a record loss of 102.9 billion yuan for 2020.
Meanwhile, China Evergrande Group, which until now remains the epicenter of developers’ liquidity crisis, delayed key votes on its offshore-debt restructuring plan just hours before they were to occur Monday. The decision added to uncertainty in a protracted process to finalize one of the country’s biggest restructuring ever.
In another worrying signal, state-backed builder Sino-Ocean Group Holding Ltd. is said to be in talks to potentially hire Houlihan Lokey Inc. as a financial adviser to explore offshore-debt options. The builder earlier this month obtained approval to extend three bond coupon payments, providing some breathing room after leverage and liquidity concerns sent its dollar notes to record lows.
Here are the key dates to watch for some of the distressed developers’ next moves:
Aug. 30: a Sino-Ocean unit’s bondholders’ meeting will end, with a vote on extending a 2 billion yuan bond
Aug. 31: deadline for Country Garden bondholders to have online meeting to vote on the grace-period proposal and an earlier request for extending the same yuan note effectively due. Sept. 4
Sept. 1: Sino-Ocean’s 2 billion yuan bond comes due as a 30-day grace period expires
Sept. 4: Country Garden’s yuan bond with 3.9 billion yuan outstanding principal comes due
Sept. 5 or Sept. 6: grace period of two Country Garden dollar bond coupon payments ends
Sept. 25-26: Evergrande creditor meeting to vote on its offshore-debt restructuring plan