Country Garden Holdings Co., formerly China’s largest developer by sales, has become a Hong Kong penny stock amid increasing scrutiny of its operations and mounting liquidity concerns.
(Bloomberg) — Country Garden Holdings Co., formerly China’s largest developer by sales, has become a Hong Kong penny stock amid increasing scrutiny of its operations and mounting liquidity concerns.
The stock tumbled as much as 14% Friday before paring loss to finish the session at HK$0.98, the lowest ever. It has plunged about 70% from a January peak, the worst performer on the Hang Seng Index in that span. That’s shrunk its market value to just $3.5 billion from an all-time high of around $50 billion in 2018.
Country Garden’s fall from grace underscores how a persistent slump in property prices is weighing on some of China’s strongest private builders. Once considered relatively immune to the credit crunch, the Foshan-based developer has become a proxy for financial contagion in an industry that accounts for about a quarter of the country’s gross domestic product.
Worries about a debt crisis have increased after Country Garden’s dollar bondholders said they’ve yet to receive coupon payments effectively due Monday. That puts the firm on course for its first public default if it doesn’t make the payments within a 30-day grace period.
A gauge for Chinese builders pared earlier losses after Cailian reported China’s securities watchdog, developers and financial institutions discussed the sales and debt situation of real estate companies at a meeting on Friday. The mainland benchmark CSI 300 Index slumped 2.3% today, the most since October, when China began reopening from Covid restrictions.
Read: Country Garden Is in Danger of a Default Rivaling Evergrande
The troubled builder expects to book up to $7.6 billion in net loss for the first half of this year, and has refrained from addressing its coupon payments in a Hong Kong exchange filing Thursday night. Earlier, Moody’s Investors Service downgraded the developer by three notches to Caa1, citing “heightened liquidity and refinancing risks.”
At least three brokerages have downgraded the stock’s rating since Tuesday, including HSBC Holdings Plc and CLSA Ltd. The average analyst 12-month price target has dropped to HK$1.32 from an all-time high of over HK$19 in 2018, according to Bloomberg-compiled data. Analysts at Goldman Sachs Group Inc. halved their price target on weak sales and liquidity issues, while maintaining a neutral rating.
The profit warning is likely “the prelude to an ultimate credit event,” and the company “might already be in preparation for debt restructuring,” JPMorgan Chase & Co. analysts including Karl Chan wrote in a note. “Up until now, we still see no signs of further government support or bail-out.”
Country Garden didn’t immediately comment when reached by Bloomberg News.
(Updates prices throughout.)
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