Once upon a time, after the gold standard was introduced, the disaster occurred at Country Garden Holdings China’s property industry, cost stock and bond investors have significant losses. Now, the developer could cause wider damage to the economy than a high-profile default. China Evergrande Group.
The company’s stock has fallen 67 percent this year, shedding $49.2 billion ($6.3 billion) from its market capitalization as its market value plummeted to $3.1 billion, as the financial crisis stunned the market. $14 billion in it is outstanding. Domestic and foreign currency bonds They have lost at least 90 percent of their face value, according to Bloomberg data.
A pullout from the benchmark Hang Seng index and multiple deadlines on principal and interest payments over the next few days will raise the risk of default and focus the crisis.
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“When Evergrande defaulted on its debt at the end of 2021, Country Garden was thought to be a favorite of real estate developers,” said Alicia Garcia Herrero, Natsys chief economist for Asia Pacific. 21 research note. “The fact that the country’s garden profitability is rapidly deteriorating is a sign of how systemic the real estate problems are in China.”
Country Garden is trying to convince offshore investors on Sept. 4 that a 30-day grace period for corporate bonds maturing in August to make missed bond interest payments ends a few days later. Failure to pay may trigger a bankruptcy default, including certain. 156 billion yuan ($21.5 billion) in bank loans.
Country Garden declined to comment when contacted for this story.
Evergrande, the world’s largest lender with $327 billion in liabilities, caved in two years ago and the crisis has been compounded by defaults on major Chinese peers.
The decline of the domestic garden may be more serious domestically, as it acts as a bellwether for mass-market housing in China. More than 60 percent of sales last year were in the country’s so-called third-tier and fourth-tier cities, rather than in big cities like Beijing or Shanghai.
In the year It was founded by Yang Guoqiang in Bejiao, Guangdong Province in 1992 and is now run by his daughter and former Chinese billionaire. Yang HuianThe country park grew to become one of the largest houses built for the general public in China. In the year It ranks first in China’s top 100 developers by sales in 2021 and 2022.
Yang Huian, chairman of Country Garden Holdings, was until recently China’s richest woman. Photo: Weibo alt=Yang Huian, chairman of Country Garden Holdings, was until recently China’s richest woman. Photo: Weibo>
The company By the end of 2022, it had more than 3,100 projects under development in every Chinese province, with nearly 88 million square meters (947 million square feet) of projects already sold. At the time, only 31 of the projects were located outside of China.
Evergrande had 1,200 projects completed or under construction as of June 30, 2021, before financial tensions came to a head as Beijing’s “three red lines” policy shut out weak and overperforming developers from bond and credit markets.
Country Garden, one of the few developers to receive credit lines from China’s state-owned banks when Beijing reversed course last November, has faced a much different environment in recent months.
The developer has been hit hard by the slump in home sales and the rapid post-pandemic recovery in China’s economy. It reported a loss of 48.9 billion yuan For the first half of the year. That would be followed by an annual loss in 2022, after more than a decade of broad-based profit growth.
Contract sales fell for the fourth consecutive month in July, down 25 percent to 12.07 billion yuan. The company posted the biggest sales decline among China’s biggest developers, with a 59 percent drop in July.
Developers have struggled to sell homes in the past two years following the debt crisis at Evergrande and other developers, raising fears of a slowdown in supply and demand in third-tier cities.
As of late last year, more than two-thirds of the country’s gardens under development had been sold and 42 percent of the land bank was in low-income states for future development, potentially exacerbating financial losses.
The failure to deliver pre-sold properties could have a wider impact on the property sector and the Chinese economy, further reducing consumer confidence in general, Country Paradise said.
At the end of last year, about half of Country Garden’s mortgages were settled by foreclosures from home buyers, Barclays said.
“Not only does this mean nearly a million households could be affected by Land Garden debt issues, but it also suggests that Land Garden will need to invest four times the amount of Evergrande to ensure project completion and prevent pre-sold homes from being passed on,” Nomura analysts, including Lu Ting, said in an Aug. 14 research note.
Residential buildings developed by Country Garden Holdings in Baoding, Hebei Province. Photo: Bloomberg alt=Residential buildings built by Country Garden Holdings in Baoding, Hebei Province. Photo: Bloomberg>
“Given the average completion time of three years, the pressure on Country Garden to deliver these pre-sold homes by the end of 2024 is enormous,” Nomura said.
According to S&P Global Ratings, the macro environment is very different from three years ago and confidence among homebuyers is so weak that homebuyer and investor confidence has been hit if domestic park defaults could be more severe than those offered by Evergrande.
“They think twice when they buy,” said Lawrence Lu, senior director and manager of analysis at S&P’s China Assets and Conglomerates Group. “Why don’t I wait for a big discount? Will I be in trouble if I buy now? Can they deliver home on time? Why don’t I wait for sales of existing projects.”
Confidence in the property market has already been hit in recent months China’s economy is weak And Youth unemployment He got up amazingly.
Contract sales by China’s top 100 developers fell 33 percent to 350.4 billion yuan in July from a year earlier, according to Shanghai-based property consultancy CRIC.
At the same time, there is growing concern that a sovereign default could spill over into the financial sector, particularly among fiduciary firms that provide 16 percent of the property industry’s funding. state-backed Zhongrong International Trust, one of China’s largest shadow banks; Missed payments on US$19 million in wealth management products last month.
Like other developers, Agar Garden used debt to expand its portfolio of residential properties, as well as ventures into areas outside the homebuilding sector, such as hotels and robotics.
The firm and its partners have traded onshore and offshore bond markets more than 50 times since early 2020. It also raised nearly 160 billion yuan in bank loans as of the end of June — while its total liabilities hovered around $190 billion.
File photo from September 2019 of the construction site of a country garden in Quming, Yunnan province. Photo: Reuters alt=File photo from September 2019 A construction site for a country garden in Kumung, Yunnan province. Photo: Reuters>
But while its robotics business is focused on applications for the construction and hospitality sectors, Country Garden has not been as aggressive as Evergrande in expanding outside of its core homebuilding business.
In addition to borrowing for land acquisition and construction, Evergrande has taken on significant debt through ventures into electric vehicles, amusement parks and most of its franchises. Chinese professional football team.
Evergrande’s total debt has topped $300 billion as it misses payments – and will eventually default on its offshore debt in 2021 due to a cash crunch. Evergrande had about $327 billion in total liabilities as of June 30 of this year.
Shenzhen-based developer, which Chapter 15 bankruptcy protection sought It’s in the US on August 18th. The process of setting up with offshore lenders And Monday delayed the vote on the plan until the end of September. Evergrande shares 79 percent decreased When trading resumes in Hong Kong on Monday after a 17-month suspension.
Another difference between Rural Paradise and Evergrande – and one of the reasons why the former is considered a safe bet – is that only 30 percent of the debts at the end of last year were for accounts payable, trade receivables, or IOUs for suppliers, according to an analysis by Barclays. Only 19 percent of the debt was interest bearing debt.
By comparison, interest-bearing debt and IOUs to suppliers accounted for 66 percent of Evergrande’s liabilities at the end of last year, Barclays said.
He said he would do Country Garden on Wednesday. It issued HK$270 million (US$34 million) in shares. To pay the money to Kingboard Holdings, a Hong Kong industrial conglomerate and property developer.
In the year At the end of June, the most recent data available, Country Garden had onshore and offshore bonds, convertible bonds and loans worth 108.7 billion yuan over a one-year period and long-term debt of 149.2 billion yuan, or roughly US. A total of $35 billion.
By comparison, Evergrande, which has remained in business as it seeks to restructure its debt, had about $86 billion in bank loans and other debt, or about a quarter of its total debt, at the end of June — two years removed from its first. His financial problems.
This year, Country Garden will face more than US$2.5 billion in coupon payments and maturities on its onshore and offshore debt, according to an analysis by JPMorgan.
JPMorgan analysts Carl Chan and Kathryn Leigh said: “The fact that 40 percent of developers have already rejected sales in 2021 is a surprisingly low rate of contagion.” August 9 research note.
Even if it pays the missing coupon payments before Wednesday’s deadline, Country Garden may find it harder to continue borrowing money if it faces further liquidity crunches.
While home buyers can only stick to the strongest developers connected to the government, other private developers may now be caught between a rock and a hard place – investors and financial institutions will be more hesitant to finance them, said Nicholas Chen, an analyst with CreditSights.
At the same time, Country Garden is a major employer with about 58,000 full-time workers, and the projects provide thousands of additional jobs through suppliers and subcontractors. The company has cut nearly 12,000 full-time jobs since the end of last year as its finances continue to deteriorate.
It will put further pressure on China’s working population, where one in five young people cannot find a job.
It will also cause more trouble for suppliers who have suffered from various developer defaults over the past two years, adding to the uncertainty of future trade payments collected from developers, S&P said.
“Small construction contractors and suppliers are in a very vulnerable position by relying on select customers like Country Garden,” the credit rating agency said in an Aug. 16 report.
“Many may be forced out of the market and may even face cash shortages as activity and volume in the property market declines significantly and difficulties in raising cash continue to increase.”
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