Scott Murdock, Claire Jim and Xie Yu
(Reuters) – Chinese developer Country Garden said on Wednesday a winding-up petition has been filed against it over failure to repay a $205 million loan, clouding prospects for debt repayment and undermining Beijing’s efforts to restore confidence in the property sector.
Country Garden said in a regulatory filing to the Hong Kong Stock Exchange that it would “strongly” oppose the petition, which was filed by lender Ever Credit Limited, a unit of Hong Kong-listed Kingboard Holdings.
A court hearing was scheduled for May 17. Kingboard did not immediately respond to a Reuters request for comment.
Country Garden shares fell more than 12% on Wednesday after the filing, missing a 0.2% gain.
The petition seeks to revive concerns among homebuyers and lenders about a debt crisis in China’s property sector at a time when Beijing is trying to boost confidence in an industry that accounts for a quarter of China’s GDP.
The liquidation of Country Garden would worsen the real estate crisis, increase the burden on its domestic creditors and could delay the prospect of recovery not only of the real estate market but of the entire Chinese economy.
The petition arrived a month after China Evergrande (HK:) A Hong Kong court has ordered the liquidation of the Group, the world’s largest property developer with liabilities of more than $300 billion.
Evergrande now faces a complex restructuring process that some investors believe could take more than a decade.
China’s real estate sector, the backbone of the world’s second-largest economy, has suffered one crisis after another since 2021 after regulatory crackdowns on debt-fueled construction triggered a squeeze on liquidity.
Since then, a number of property developers have defaulted on their debt repayment obligations, and many have either started or are in the process of starting debt restructuring processes to avoid bankruptcy or liquidation proceedings.
New home prices in China slowed their monthly decline in January, with some stabilization in major cities, but the nationwide downward trend continued despite Beijing’s efforts to revive demand.
“RADICAL ACTION”
Country Garden’s debt restructuring process, which has gained momentum in recent weeks as its $11 billion offshore debt is deemed unsettled, could be overshadowed by the winding-up petition if it causes other creditors to think twice about settling.
Country Garden appointed KPMG and law firm Sidley Austin as advisers to review the capital structure and liquidity position and formulate what it called a “holistic” solution.
Last October, the company missed coupon payments on $15 million in bonds and so-called special bondholder groups made up of international creditors were formed. It is not yet known whether Country Garden has begun negotiations with creditors.
As of the end of June 2023, the developer’s total liabilities stood at 1.36 trillion yuan ($188.9 billion), close to its total assets of 1.43 trillion yuan.
“Country Garden has taken too long, fiddling around with changing advisers and wasting time, so it’s no wonder people are getting impatient and choosing to liquidate them,” an investor in Country Garden’s dollar bonds told Reuters.
The investor could not be named because he was not allowed to talk to the media.
Country Garden said in a statement that it will continue to “actively communicate and work with its offshore creditors on its restructuring plan” as it seeks to announce terms to the market as soon as possible.
“The drastic actions of one creditor will not have a significant impact on our company’s guaranteed delivery of buildings, normal operations and the overall restructuring of foreign debts,” the company said in a statement to Reuters.
Investment holding company Kingboard in October became one of the first high-profile companies to take legal action against Country Garden when its Ever Credit unit, which owes HK$1.6 billion ($204.5 million), made a statutory demand for repayment of the debt.
Country Garden’s top management warned earlier this year that the property market would remain weak into 2024 and the company could face more “severe” challenges.
Country Garden has also recently stepped up the sale of its offshore assets to raise funds, selling its stake in its latest Australian project last month and putting a residential development in East London up for sale.
($1 = 7.8244 Hong Kong dollars)
($1 = 7.1989 yuan)