According to a source close to the company, Country Garden (2007.HK) has paid interest on two U.S. dollar bonds shortly before a grace period was set to expire on Tuesday. This is good news for the struggling developer and the crisis-stricken Chinese real estate market.
The $22.5 million in bond coupons that were due on August 6 were not paid by China’s largest private property developer, escalating worries about the developer’s financial status and keeping markets on edge for the duration of their 30-day grace periods. Even though the sum was relatively small, failure to pay would have dashed the tenuous hopes of the financial markets that China’s gradual policy stimulus was beginning to stabilise the faltering real estate market and the larger economy.
Country Garden’s Shares fall on Tuesday
According to bondholders and solicitors, it would have also increased the possibility of default and sparked requests for payment acceleration from holders of other dollar bonds. An inquiry for comment was not immediately answered by Country Garden. Since they were not authorised to speak with the media, the firm insider declined to give their name.
After Reuters reported that the developer had sent the money, the share price of the company fell by almost 3% on Tuesday, suggesting little change. As some investors cashed in on gains from earlier sessions, the Hang Seng Mainland Properties Index (.HSMPI) and China’s CSI 300 Real Estate Index (.CSI000952) each saw losses of more than 2%.
Before failing to pay the coupons on the two dollar bonds last month as a result of slower demand for new houses translating into tighter cash flow, Country Garden had never missed a debt payment commitment, either onshore or offshore. According to research by CreditSights, Country Garden has further payments due this year totaling around $162 million in addition to the ones that were due on Tuesday for offshore bond interest.
Vulnerability of China’s Real Estate Market
Country Garden’s condition serves as a reminder of how vulnerable China’s real estate market is, which makes up around 25% of the world’s second-largest economy and whose state has been worse since a government campaign against high borrowing started in 2021.
A sluggish post-pandemic economic rebound makes things worse. According to a private sector survey released on Tuesday, services activity grew at its weakest rate in eight months in August as the economy continued to be plagued by sluggish demand and stimulus measures failed to significantly boost consumption. Recent stimulus measures included a reduction in mortgage interest rates and preferential financing for first-time homebuyers in large cities.
