Lack of payment would make Country Garden the latest in scores of Chinese developers who have defaulted. The firm had last week warned about its inability to meet offshore debt obligations

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Country Garden’s entire offshore debt will be deemed to be in default if China’s largest property developer fails to make a $15 million coupon payment on Tuesday, the end of a 30-day grace period.

Non-payment of this tranche is set to trigger cross defaults in other bonds as is standard in bond contracts.

Lack of payment – which is expected after Country Garden last week warned about its inability to meet offshore debt obligations – would make the firm the latest in scores of Chinese developers who have defaulted.

Country Garden has also missed other offshore payments in the past few weeks though those payments still have not seen their 30-day grace periods lapse.

Country Garden declined to comment.

Impending disaster

With nearly $11 billion of offshore bonds and $6 billion of offshore loans, a default by Country Garden would set the stage for one of China’s biggest corporate debt restructurings.

Country Garden has appointed Houlihan Lokey, China International Capital Corporation (CICC) and law firm Sidley Austin as advisers to examine its capital structure and liquidity position and formulate a ‘holistic’ solution.

Last week, printed circuit board maker Kingboard Holdings became one of the first known listed companies to take legal action against Country Garden when a unit, which is owed HK$1.6 billion ($204 million), issued a statutory demand seeking repayment.

Real estate sector in a soup

So far, developers accounting for 40 percent of Chinese home sales have defaulted on their debt obligations since 2021, according to JPMorgan. CreditSights figures show Chinese developers have defaulted on more than $114.6 billion of $175 billion in dollar bonds outstanding since 2021.

As more developers moved towards restructuring debt, their offshore creditors are expected to be offered less favourable terms amid a worsening outlook for the country’s real estate sector. ($1 = 7.8203 Hong Kong dollars) 

What are the Implications of a Default by Country Garden?

A default by Country Garden would have a number of implications, including:

  • Impact on the Chinese economy: A default by Country Garden would have a negative impact on the Chinese economy. The real estate sector is one of the most important sectors in the Chinese economy, and it is currently facing a number of challenges. A default by Country Garden would further weaken the real estate sector and could lead to a recession in the Chinese economy.
  • Impact on the global real estate market: A default by Country Garden would also have a negative impact on the global real estate market. The company is a major player in the global market, and it has projects in many countries around the world. A default by Country Garden could lead to a decline in real estate prices and a slowdown in the global real estate market.
  • Impact on investors: A default by Country Garden would also have a negative impact on investors. The company has over $100 billion in offshore debt, and many investors have invested in Country Garden bonds. A default by Country Garden would mean that these investors would lose their money.

What are the Chinese Government’s Options?

The Chinese government has a number of options to deal with the potential default by Country Garden. The government could:

  • Provide financial assistance to Country Garden: The Chinese government could provide financial assistance to Country Garden to help the company repay its debt. This would be the most expensive option for the government, but it would also be the most effective way to prevent a default.
  • Bail out Country Garden: The Chinese government could bail out Country Garden by taking control of the company. This would be a less expensive option for the government, but it would also be less effective. A government-owned Country Garden would likely be less efficient and profitable than a privately owned Country Garden.
  • Allow Country Garden to default: The Chinese government could also allow Country Garden to default. This would be the least expensive option for the government, but it would also be the most disruptive. A default by Country Garden would have a negative impact on the Chinese economy and the global real estate market.

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