A group of Country Garden Holdings Co. creditors is seeking to declare a default on a yuan bond, bringing a fresh complication for the distressed Chinese developer whose liquidity crisis has shaken the nations financial markets.
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Investors who say they collectively hold 10.5% of a yuan bond effective Sept. 4 have proposed the note be declared in default because of a recent downgrade, according to a filing in the Shanghai Stock Exchanges private disclosure platform that was seen by Bloomberg News. While the investors were not identified, the holders of that same amount had previously demanded full repayment of the security by its maturity.
The bondholders of the bond can vote on the proposal to call default until 10 p.m. Beijing-time Thursday, as well as on Country Gardens' own request to stretch payment of the 3.9 billion yuan $535 million of outstanding principal into 2026. Passage would require support from creditors holding at least 50 percent of the principal. The board is also voting on a company proposal to extend the grace period of 40 days for noteholders.
The development brings 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 Builders' sorrow has deepened, as 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 has to be paid within a separate grace period that ends next week to avoid default.
The default proposal by Moodys Investors Service had been made after Moodys Investors Service cut Country Gardens ratings by three notches to Caa 1 earlier this month. A two-notch cut by an offshore rating firm allows bondholders to convene a meeting to determine whether an event of default can be declared, according to the prospectus.
The building's significance to the broader economy stems from its sheer size, helmeted by one of China's richest women, Yang Huiyan. As of June 30, it had the equivalent of $187 billion of total liabilities, with more than 3,000 housing projects in smaller cities and about 70,000 employees.
That status had given Country Garden the firepower to overcome an industry cash crunch that caused 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 contract sales, risks worsening fallout than Evergrande given it has quadrupled the property projects.
The firm has revealed a planned asset sale and the issuance of $34 million of stock to pay off debts it owes.
Elections for the bond proposals were originally slated to end on Aug. 25, but Country Garden extended the list just hours before the deadline, according to the company's website.
China's private-sector developers, including Country Garden, are grappling with an unprecedented crisis, after a government effort to curtail debt-fueled growth and housing speculation led to cash crunches. Government officials are trying to boost the demand for the property sector, which together with related industries account for about 20 percent of the economy.
The problem of Country Gardens has been compounded in the past few months, as the company shut down as much as $2.9 billion of notes in the rest of this year. Attributable sales rose 35% in July, compared to the same period last year.
It said in an exchange filing Wednesday that if financial performance continues to deteriorate, the group may not be able to meet its debt obligations, which may result in default. In a statement, Country Garden said there are material uncertainties which may cast significant doubt on the groups ability to continue as a going concern.
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