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New Delhi
In a tumultuous turn of events, Country Garden, China's largest property developer, is teetering on the edge of default, sending shockwaves through the country's real estate sector. The company faces a critical $15 million coupon payment deadline, which could trigger one of China's largest corporate debt restructurings.
The precarious situation
Country Garden's offshore debt, listed on the Hong Kong Stock Exchange, will be considered in default if the impending $15 million coupon payment, due at the end of a 30-day grace period, goes unpaid. The company has already indicated its inability to fulfill its offshore debt obligations, raising concerns.
A chain reaction of defaults
Non-payment of the coupon is expected to set off cross defaults in other bonds, a common clause in bond contracts. The company has already missed other offshore payments in recent weeks, though they are still within their respective grace periods.
In response to the looming crisis, Country Garden has taken proactive steps by appointing financial advisory firms Houlihan Lokey, China International Capital Corporation (CICC), and law firm Sidley Austin. These advisors will assess the company's capital structure and liquidity position and work on formulating a comprehensive solution.
Legal battles emerge
The default crisis has not only raised financial concerns but also legal disputes. Kingboard Holdings, a printed circuit board maker, has initiated legal action against Country Garden. A unit of Kingboard Holdings owed HK$1.6 billion ($204 million) issued a statutory demand seeking repayment.
A broader trend in China's property market
The impending default by Country Garden adds to a growing trend within China's property development industry. Since 2021, approximately 40% of Chinese developers, responsible for a significant share of home sales, have defaulted on their debt obligations. CreditSights data highlights that Chinese developers have defaulted on over $114.6 billion of the $175 billion in outstanding dollar bonds since 2021.
Outlook for offshore creditors
As more Chinese developers move toward debt restructuring, offshore creditors can anticipate less favorable terms amid a challenging outlook for China's real estate sector. The sector's struggles, combined with a wave of defaults, cast a shadow on the once-booming property market in the world's most populous nation.
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