Shares in Country Garden Tumble as Bond Payments are Missed

Shares in real estate giant Country Garden tumbled on Monday after the company missed bond payments and warned of billions of dollars in losses, heightening worries about China’s heavily indebted property sector.

The Chinese company’s share price fell more than 16% at 03:00 GMT on the Hong Kong Stock Exchange.

The private real estate giant was included in the Forbes list of the 500 largest companies in the world. His boss, Yang Huiyan, was until recently one of the richest women in Asia.

Challenges Faced by Country Garden

“We are facing challenges that are the biggest since our founding,” Yang said in a statement on Friday, adding: “We firmly believe that the real estate sector will eventually return to a path of healthy and sustainable development after going through this phase of profound change. .”

The company has long been considered financially strong, but it failed to make two bond payments last Monday, and after a 30-day grace period, it faces default in September if it still fails to pay.

And Country Garden announced at the end of the week that it would suspend trading in its domestic bonds starting Monday, in a decision likely to worries the markets, while the company says the value of its debt was up to about 1.15 trillion yuan ($159 billion) at the end of 2022.

Its additional commitments have boosted other estimates of total debt to around 1.4 trillion yuan ($193 billion), according to Bloomberg.

Disastrous Consequences

The collapse of Country Garden will be disastrous for China’s financial system and economy, as well as for heavily indebted rival Evergrande.

Earlier this month, the group announced that it expects its losses in the first half to be between 45 billion and 55 billion yuan (approximately $6.2 billion to $7.65 billion).

“Due to the recent deterioration in sales and the refinancing situation, the funds available in the company’s treasury are constantly being reduced, which gradually leads to a decrease in liquidity,” the company confirmed in an announcement published by the Hong Kong Stock Exchange.

China’s housing reforms in the late 1990s led to a real estate boom, fueled by social traditions that held property ownership as a condition of marriage.

Funding Dried Up

However, in recent years, Beijing has come to view the huge debt accumulated by large companies in this sector as an unacceptable source of danger to the country’s financial system and its overall economic health.

In an effort to reduce the debt of the sector, the authorities have gradually tightened the conditions for obtaining loans by developers since 2020, which has led to the drying up of sources of financing for companies, mostly indebted.

This was followed by several companies, most notably Evergrande, defaulting, eroding the confidence of potential investors and affecting the sector.

The collapse of the once-thriving sector came amid a general economic slowdown in China.