China’s real estate market is facing another potential black swan event as the country’s paradise, once China’s biggest property developer, plunges into a crisis that could outpace the influence of China’s Evergrande Group.
Foshan-based Country Garden is under heavy scrutiny as it oversees four times as many property projects as Evergrande. China’s housing slump is fueling broader concerns about the economy, with signs of spillover effects from defaults on major shadow banks and bond sales among Hong Kong property developers.
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Liquidity crisis and missed payments
Country Garden said it is in ongoing negotiations with bond investors and banking institutions to extend maturity and secure its financial position. The company missed interest payments on some dollar bonds. Important dates are fast approaching, including a vote on yuan bonds to extend the payment deadline to September 4. In addition, the company must first explore grace periods for an aggregate $22.5 million in note coupons. September.
Financial problems and property damage
The situation is particularly worrisome as Treasury bonds are trading at high levels of stress. The $1 billion note, which was due to mature in January, is currently trading at less than 13 cents on the dollar. The company has dropped its stock by 67% this year, dropping to penny stock status. Despite a 39 percent rise in revenue, the company posted a net loss of 48.9 billion yuan ($6.72 billion) in the first half of 2023, compared with a profit of 612 million yuan a year earlier.
Lack of proactive measures
In a recent filing, Country Garden acknowledged a lack of timely action to prevent a market slowdown. He admits to underestimating the risks associated with a heavy focus on low-end property markets.
“The depth and persistence of the market’s downtrend has put the company out of control,” the filing said.
Key financial figures:
Revenue rose 39.4 percent to 226.3 billion yuan.
Core net loss was 45.3 billion yuan, a sharp contrast to last year’s core net profit of 4.9 billion yuan.
Total liabilities fell slightly to 257.9 billion yuan, but are set to reach 108 billion yuan in the next 12 months.
Cash balance decreased to 130.6 billion yuan, including 29.5 billion yuan.
What’s next for China’s economy?
China’s property slowdown has taken another hit, with new home sales falling sharply over the past year since July. Despite the recent easing of mortgage policies by the central government, analysts are skeptical that these measures will be enough to contain the economic downturn. China’s major banks are also said to be preparing to lower interest rates on existing loans and deposits to boost growth.
The crisis unfolding in Country Garden has added yet another urgency to China’s economic challenges and raised new questions about the stability of the global economy. The consequences of the collapse are far-reaching, affecting not only the real estate sector but also financial markets and economic growth both in China and globally.
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This column Another Black Swan Event for China’s Real Estate Market? China’s former largest real estate developer is sounding the alarm. It appeared at first Benzinga.com
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