Some Country Garden Bondholders Seek Default on Yuan Note

A group of Country Garden Holdings Co. creditors is seeking to declare a default on a yuan bond, adding a fresh complication for the distressed Chinese developer whose liquidity crisis has shaken the nation’s financial markets.

(Bloomberg) — A group of Country Garden Holdings Co. creditors is seeking to declare a default on a yuan bond, adding a fresh complication for the distressed Chinese developer whose liquidity crisis has shaken the nation’s financial markets.

Investors who say they collectively hold 10.5% of a yuan bond effectively due Sept. 4 have proposed the note be declared in default because of a recent downgrade, according to a filing to the Shanghai Stock Exchange’s private disclosure platform that was seen by Bloomberg News. While the investors weren’t identified, holders of that same amount had previously demanded full repayment of the security by its maturity.   

Holders of the bond can vote until 10 p.m. Beijing-time Thursday on the proposal to call default, as well as on Country Garden’s own request to stretch payment of the 3.9 billion yuan ($535 million) of outstanding principal into 2026. Each proposal being voted on requires support from creditors holding at least 50% of principal to pass. The noteholders are also voting on a company proposal to add a 40-day grace period.

The development adds uncertainty to a crucial vote for Country Garden, which revealed late Wednesday an unprecedented net loss of 48.9 billion yuan in the first half of the year, and warned of possible default. The builder’s distress has deepened after it missed $22.5 million of dollar-bond coupons earlier this month, dragging the broader Chinese junk dollar debt market to its lowest levels this year. It must repay within a separate grace period that ends next week to avoid default.

The default proposal by the bloc holding only 10.5% of the yuan bonds was made after Moody’s Investors Service cut Country Garden’s ratings by three notches to Caa1 earlier this month. A two-notch cut by an offshore ratings firm allows bondholders to convene a meeting on whether an event of default can be declared, according to the note’s prospectus.

Country Garden didn’t immediately offer a comment when reached Thursday.

Helmed by one of China’s richest women, Yang Huiyan, the builder’s importance to the broader economy stems from its sheer size. It had the equivalent of $187 billion of total liabilities as of June 30, with more than 3,000 housing projects in smaller cities and about 70,000 employees.

That status had given Country Garden the firepower to withstand an industry cash crunch that led to record defaults since China Evergrande Group first missed bond payments in 2021. But an industry slump is threatening that streak. Any stumble by Country Garden, now China’s sixth-largest builder by contracted sales, risks worse fallout than from Evergrande given it has quadruple the property projects.

Country Garden in recent days has disclosed a planned asset sale and the issuance of $34 million of stock to pay off money it owes.

Voting on the company’s bond proposals was initially slated to end on Aug. 25, but Country Garden extended it just hours before the deadline. 

China’s private-sector developers like Country Garden are grappling with an unprecedented crisis, after a government effort to curtail debt-fueled growth and housing speculation led to cash crunches. Officials have attempted myriad efforts to stoke demand for the property market — which along with related industries accounts for about 20% of the economy.

Country Garden’s troubles have intensified the past few months as it stares down as much as $2.9 billion of note obligations the rest of this year. Meanwhile, attributable sales through July fell 35%. 

It said in an exchange filing Wednesday that if financial performance continues to deteriorate, the group might not be able to meet its debt obligations, “which may result in default.” Country Garden also said there are “material uncertainties which may cast significant doubt on the group’s ability to continue as a going concern.” 

–With assistance from Emma Dong and Xinyi Luo.

(Retops with news on some bondholders seeking default)

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