Chinese Real Estate Company 'Default Domino'... "Can't Even Pay Interest"

Country Garden Fails to Repay 30 Billion KRW in Corporate Bond Interest
Concerns Grow Over Domino Defaults in Chinese Real Estate

Country Garden Holdings, one of China's top three real estate developers, has failed to repay $22.5 million (approximately 30 billion KRW) in interest on its corporate bonds. The prolonged downturn in the real estate market has raised fears of a default domino effect, with concerns that a crisis similar to the Evergrande incident, where the company became a defaulting entity, could recur.

[Image source=Yonhap News]

According to major foreign media including The Wall Street Journal (WSJ) on the 8th (local time), Country Garden announced on the 7th that it failed to repay $22.5 million in interest on bonds with a face value of $1 billion, which were due on that day. However, the company has a 30-day grace period during which it can pay the interest before investors officially declare a default.

In a statement, Country Garden explained, "We are experiencing liquidity pressure due to worsening sales and refinancing conditions," and added, "We are actively adjusting our debt and striving to protect the rights of bondholders."

The prices of Country Garden's corporate bonds also plummeted. According to the bond trading platform Tradeweb, the company's bonds maturing in 2026 and 2030 were trading at $5 to $6 per dollar at the beginning of the year but have now fallen to around 7 to 8 cents. Although an official default has not yet been declared, investors are effectively treating it as a default.

The company's stock price, listed on the Hong Kong Stock Exchange, has dropped by more than half since the beginning of this year and plunged 14% on the 8th. This has caused other real estate stocks to fall sharply as well.

Sandra Chow, Co-Head of Asia-Pacific Research at credit rating agency CreditSights, said, "The fact that the company is struggling with interest payments rather than full principal repayment highlights how 'tight' its liquidity is," and added, "The failure to pay interest will have negative ripple effects on this (real estate) sector."

This points to a severe liquidity crunch where the company cannot even repay interest, let alone principal. Experts believe that Country Garden is likely to request maturity extensions from its creditors.

In particular, concerns are growing that defaults among Chinese real estate developers could increase, as Country Garden, designated last November as one of the top real estate developers by the Chinese government, is now facing a default situation. Last month, Dalian Wanda Commercial Management Group, a core affiliate of the large Chinese real estate developer Wanda Group, also faced a default crisis. Starting with Evergrande's default in 2021, which plunged the Chinese real estate market into crisis, the crisis is spreading.

As the downturn in the Chinese real estate market prolongs, more companies are expected to collapse due to liquidity crises. According to China Real Estate Information Corporation (CRIC), the new home sales of the top 100 Chinese real estate developers in July amounted to 305.43 billion yuan, a 33.1% decrease compared to the same period last year. It also dropped 33.5% compared to the previous month. The real estate market, which seemed to revive at the beginning of the year, is rapidly cooling again. Country Garden's July home sales also plunged to less than half of what they were a year ago and to a quarter of what they were two years ago.

Chinese regulatory authorities have introduced various real estate measures such as lowering loan interest rates, expanding support for subscription and loans, and providing tax and cash support, but these efforts have been insufficient to thaw the cooled market.

The WSJ reported, "Country Garden's cash crunch shows how quickly the Chinese housing market has deteriorated after a short rebound earlier this year," and added, "The interest payment failure of Country Garden, which Chinese authorities had held up as a model, signals a new crisis in the Chinese real estate market."

This content was produced with the assistance of AI translation services.