Credit：Visual China

Country Garden is currently one of the few private real estate companies in China that has yet to default on its debt. It said, at an interim filling with the Hong Kong Stock Exchange (HKEX) Wednesday, it did not make interest payments due this month of certain senior notes though these interest payments are still within the 30-day grace period as at the date of this interim financial information.

The Foshan-based residential developer said its directors have assessed that it was in compliance with the financial covenants of certain borrowings, which had solvency performance and other requirements, as of June 30. However, the company warned if its financial performance continues to deteriorate in the future, it “might not be able to fulfill the financial covenants of these borrowings, which may result in default in these borrowings and cross-default in certain other borrowings.”

The Wednesday report showed Country Garden recorded loss of RMB51.46 billion (US$7 billion) in the six months ended June 30, much more widening from the loss of RMB2.962 billion in the year of 2022, when the company suffered its first annual loss since it went public 16 year ago. The core net loss attributable to the owners was RMB45.35 billion, near the lower end of the company’s forecast between RMB45 billion and RMB55 billion.  

Country Garden blamed the widener loss for the downturn of China’s property market. The developer said it faced significant challenges in the pre-sale performance, in particular, its pre-sale performance has declined significantly since April, and there has been no obvious sign of rebound till now. To showcase how challenging the business environment to the sector, the company cited statistics that property sales by floor area dropped 5.3% year-over-year (YoY) while investment in property development fell 7.9% YoY in 2023.

The report stressed businesses and prospects of Country Garden are largely dependent on the performance of the property market in mainland China. Even though the company had already anticipated the market adjustment in the industry cycle, the profundity and persistence of the market’s downtrend still caught it off guard. It felt deeply remorseful for the unsatisfactory performance, according to the report.

Despite the difficult operating environment, Country Garden made progress at the top line. It recorded total revenue of RMB226.31 billion in the first half of this year, increasing 39.4% from a year earlier. As of June 30, the total interest-bearing debts decreased 4.9% YoY to RMB257.91 billion, down from about RMB271.31 billion at the end of 2022. The net gearing ratio, still at low levels in the industry, stood at 50.1% in late June, gaining 10 percentage points from about 40.0% as at December 31, 2022. Country Garden cautioned phased liquidity pressure as the decrease in available cash balance continued due to the deteriorating sales performance and the weak environment for refinancing in the year.

Earlier this week, Country Garden made its latest effort to avoid default. It proposed a 40-day grace period for repayment of an online bond. The bond’s RMB3.9 billion of outstanding principal will come due on September 2. At the report, Country Garden vowed to improve its operating cash flow by ensuring good sales performance, revitalizing under-performing assets and reducing inessential administrative expenses. With ample land reserves and sufficient net assets, it will consider adopting various debt management measures to resolve the liquidity pressure, thus maintaining the stability of business operation, better preserving the value for investors and protecting their interests.

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