Claire Jim
HONG KONG (Reuters) – Struggling Chinese property developer Country Garden said it could not pay two onshore coupons due on Thursday, but China Bond Insurance Co would do so on its behalf if it missed a grace period that ends on next week.
The move would be the first time a state-owned company has come to the aid of an issuer under a Beijing-led program launched in 2022 to bolster investor confidence, and analysts warn it could make it difficult to issue bonds in the future.
Country Garden, which defaulted on $11 billion of its offshore bonds and extended payments on other domestic bonds late last year, said in a statement that it was unable to pay domestic coupons due Thursday while it was still trying to raise funds.
“For reasons including lagging expectations for a sales recovery and difficulties with capital reallocation, we are unable to pay coupons on a timely basis,” the developer said.
But the company intended to make the payment and additional interest by May 13 within a grace period of five business days, it added.
In August 2022, Chinese regulators required the state-owned financial guarantee services company to provide guarantees for onshore bond issues by a few select private developers, including Country Garden.
The directive comes amid growing concerns that the deepening debt crisis and rising defaults could impact companies that were considered financially sound.
Under the program, China Bond Insurance Co will provide a “full, unconditional and irrevocable joint and several liability guarantee” on the medium-term bonds, the bond documents said.
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If Country Garden still does not pay the coupons by the end of the grace period, the state-owned company will undertake obligations to improve its creditworthiness as a guarantor, the developer added.
China Bond Insurance Co did not immediately respond to a request for comment.
The coupons, totaling 65.95 million yuan ($9.1 million) due Thursday, are tied to two medium-term bonds guaranteed by China Bond Insurance Co and issued in May last year, months before Country Garden defaulted on its offshore bonds.
They have outstanding RMB 800 million and RMB 900 million respectively.
After defaulting last year, Country Garden managed to pay coupons on two other government-guaranteed bonds in December.
Analysts said the market is confident the state-owned company will help make payments under the guarantee program, but are skeptical about the prospects for new issues.
“Regulators have tried to tell investors that they don’t have to worry about this program, but it won’t work anymore; companies still continue to default,” said Stephen Leung, director of UOB Kay Hian.
“Regulators will have to come up with new methods to help new releases.”
($1 = 7.2248 yuan)