Country Garden on Verge of First Default Amid Silence on Bond

Distressed Chinese builder Country Garden Holdings Co. has remained silent as a grace period is ending for dollar-bond interest that if unpaid would mark its first-ever public default.

(Bloomberg) — Distressed Chinese builder Country Garden Holdings Co. has remained silent as a grace period is ending for dollar-bond interest that if unpaid would mark its first-ever public default.

A holder of the note, on which $15.4 million of interest is owed, said they had yet to receive money as of 9 a.m. Hong Kong time Wednesday from the country’s former top developer. They requested anonymity as they’re not authorized to speak publicly. 

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

The company, whose $187 billion of total liabilities make it one of the world’s most indebted builders, must pay the coupon by the end of a 30-day grace period Oct. 17-18 or a default can be called. Country Garden hasn’t clarified which day marks the official end of the grace period, resulting in uncertainty given the initial missed deadline of Sept. 17 fell on a Sunday. That made the payment’s effective deadline the following day.

This is the first major test for Country Garden, which has become a symbol of China’s broader property debt crisis, since warning last week that it didn’t expect to be able to meet all future offshore payment obligations. That statement, the developer’s most-recent public disclosure about its debts, was the firm’s strongest indication yet that it was poised for a default and restructuring. Country Garden has $9.9 billion of dollar notes outstanding and would be one of China’s biggest-ever restructurings. 

An eventual default wouldn’t come as a surprise given the builder’s dollar bonds are trading at deeply distressed levels of around 5 cents, indicating low expectations for debt recovery. Country Garden also said last week that it hadn’t made a due payment totaling HK$470 million ($60 million) “under certain of its indebtedness,” without specifying. 

Any default or a messy restructuring by Country Garden threaten to send China’s housing sector into deeper turmoil, as it has several times the number of projects of China Evergrande Group. That builder’s default two years ago sent shock waves across Chinese markets. 

–With assistance from Emma Dong.

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