By Xie Yu and Carolina Mandl
HONG KONG/NEW YORK (Reuters) – Homeland Park’s agreement with creditors to extend payments on 3.9 billion yuan ($537 million) of offshore debt brought much-needed relief to the developer and China’s crisis-hit property sector.
But while investors in the company and watchers of the Chinese economy are sounding relieved, it remains to be seen whether the government’s stimulus measures will soon help revive demand and ease the sector’s cash crunch.
The financial woes of China’s top private developers have further highlighted the fragile state of the country’s real estate industry, which accounts for a quarter of the economy and is deeply indebted as of 2021.
Country Garden has not missed a debt payment obligation, compared with peers, until last month’s decline in housing demand hurt cash flows.
Since then, the Chinese authorities have taken several measures, the most important of which is the reduction of the current mortgage rate and preferential loans for first home purchases in large cities.
“We will see in the coming months if these supply-side measures can revive domestic buying demand, which is critical to the fortunes of Chinese developers and their ability to accommodate future debt maturities,” said Tara Hariharan, managing director of Global Macro. hedge fund NWI Management in New York.
She noted that Country Garden and other developers expect payments for maturities of this year’s size.
After a vote on the proposal late Friday, Country Garden is now allowed to pay off the beach’s debt over three years instead of meeting its Sept. 2 obligation.
It also has another immediate, albeit smaller, debt payment challenge — a grace period that expires Tuesday for missed coupon payments last month on a total of $22.5 million in two offshore dollar bonds.
That Land Garden has been able to avoid defaults on offshore has increased the prospect of making interest payments on those bonds, said the three offshore lenders, who spoke on condition of anonymity because they were not authorized to speak to the media.
After that, the lenders said they expected Land Paradise to enter into negotiations to restructure its offshore debt to avoid a “hard default” as it did with onshore lenders.
Country Garden did not immediately respond to a request for comment.
While China’s property industry may have found some relief, some market participants said they plan to stay out of the sector until home sales rebound.
“In April 2020, we sold all of our Chinese real estate holdings and haven’t bought anything since then,” said Qi Wang, CEO of Hong Kong-based MegaTrust Investments. “Now a ten-foot pole won’t touch the private builders.”
($1 = 7.2606 Chinese Yuan)
(By Xie Yu in Hong Kong, Carolina Mandl in New York and Joe Cash in Beijing; Writing by Sumit Chatterjee; Editing by Edwina Gibbs)
