China’s former biggest builder Country Garden Holdings Co. has joined the ranks of once-strong developers that are deferring millions of dollars in payments, underscoring the sector’s entrenched debt woes.
Jitters are running high even as Country Garden has a so-called grace period to remit payments as some of its peers had relied on this to buy time before eventually slipping into default. The developer’s next bond to fall due dropped to 11 cents on Tuesday while an index tracking China’s junk dollar debt market is approaching the year’s low.
Country Garden has 30 days to repay its coupons after payment effectively came due on Monday, according to the notes’ prospectuses. Holders of two different notes said they didn’t receive the coupons as of Tuesday afternoon, and the firm didn’t respond to questions about whether it had made the payments.
The prolonged slump in China’s property sector has brought previously sound companies to their knees, with the likes of China Evergrande Group using grace periods to delay payment multiple times before eventually falling into default. Central China Real Estate Ltd., a state-backed developer, also repeatedly used grace periods to buy time before stopping payments.
In July, creditors of a unit of Dalian Wanda Group Co. and state-backed Sino-Ocean Group Holding received coupons at the last minute.
“Any debt crisis at Country Garden will have a far-reaching impact on China’s housing market sentiment and could significantly weaken buyer confidence on solvent private developers,” Bloomberg Intelligence analyst Kristy Hung wrote in a report.
Country Garden’s shares fell as much as 8.9% in Hong Kong on Wednesday to reach the lowest level since November 2022. A Bloomberg gauge of China’s real estate firms posted one of its largest drops this year on Tuesday, reflecting concerns about the fallout on the sector.
“Developers may use the 30-day grace period for coupon given their tight liquidity situation and also for cost saving considering the high offshore interest rate environment,” said Iris Chen, a credit desk analyst at Nomura International HK Ltd. “It would not be a default practice as it is a bad signal that reflects tight liquidity, but distressed developers might not care that much as their bonds are already trading at low cash price.”