China’s state park is seeking to delay the repayment of domestic bonds, which has sparked market concerns

HONG KONG/BEIJING (Reuters) – Country Garden, China’s largest private developer, is seeking to delay payment on a private domestic bond for the first time, after it earlier on Monday suspended trading in 11 domestic bonds, sending its shares to a record low, a source said. low.

Concern spread to the markets after the alarming news from Country Garden (2007.HK), putting Beijing under increasing pressure to provide support to the ailing real estate sector in order to boost confidence in the ailing economy.

Deemed a more financially sound developer, Country Garden shares fell 18.4% to HK$0.8 Monday, pulling the Hang Seng Mainland Properties Index (.HSMPI) down 3.7%. The stock has lost 50% so far this month.

Country Garden’s hardships could have a chilling effect on homebuyers and financial institutions, as more private real estate companies approach the point of no return if financial support does not materialize soon.

Two Chinese listed companies said over the weekend that they had not received payment for investment products due from Zhongrong International Trust Co, adding pressure to a financial market already reeling from a downturn in the real estate sector.

The real estate sector, a mainstay of the Chinese economy, has suffered from falling sales, tight liquidity and a series of developer defaults since late 2021, with China Evergrande Group (3333.HK), the world’s most indebted developer, at the heart of the debt. . calamity.

Weak overseas demand, tepid domestic consumption and persistent problems in the real estate sector have been key factors in the economy’s struggle to make a solid post-COVID recovery, as evidenced by another batch of weak data released last week.

Country Garden’s overseas bonds also eased, with a few trading at the lower end of 6 cents against the dollar earlier. Since then, most of them have held together quite a bit.

The company has proposed to creditors to extend the repayment of internal private bonds due on Sept. 2, with a repayment of 3.9 billion yuan, for three years in seven installments, a source familiar with the matter said on Monday. Country Garden declined to comment.

In separate filings over the weekend, the developer said it would suspend trading on 11 of its internal bonds from Monday, in a move traders said typically indicates plans to seek a payment extension.

In September alone, the country garden could need to repay more than 9 billion yuan ($1.25 billion) in inland bonds, according to Reuters calculations.

The suspension of its internal bonds followed a report by Chinese media outlet Yicai on Friday that the company was heading for a debt restructuring, after it defaulted on two dollar bonds due Aug. 6 totaling $22.5 million.

Shares of its property management unit Country Garden Services (6098.HK) fell more than 10%.

According to company registration portal Qichacha, a service unit of Country Garden has offloaded its 51% stake in a Wuhan-based network technology company, while Country Garden Services’ strategic CEO has also resigned from the company’s chairman.

Country Garden Services did not immediately respond to a request for comment.

Country Garden’s woes add to spillover concerns across a real estate market already grappling with weak buyer demand.

“Problems in the sector have been brewing for a long time and have killed off the wealth effect among investors, and no one wants to buy property now,” said Dickie Wong, chief executive at Kingston Securities.

‘A decisive moment’

Wong said the sector’s impact on the economy had reached a “critical moment” and that regulators should implement more policies, including further cutting interest rates and reserve ratios.

China’s economy grew at a subdued pace in the second quarter as demand at home and abroad weakened, leading top leaders to promise more political support and analysts to cut growth forecasts for this year.

State-owned China Jinmao Corporation (0817.HK) said in a statement on Sunday that it expects to post an 80% drop in net profit in the first half of this year, due to lower gross margin on some projects and less land. development proceeds. Its Hong Kong-listed shares fell 4.1 percent on Monday.

The shares and bonds of Longfor Group (0960.HK) and Seazen Group (1030.HK), two large private developers that are still considered to be financially healthy, have come under pressure since the emergence of Country Garden’s debt problems. Their shares fell 1.8% and 3.6%, respectively, on Monday.

In a bid to boost market confidence, Longfor transferred funds worth 1.7 billion yuan ahead of the repayment date for an internal bond maturing on Thursday, a source familiar with the matter said.

The Beijing-based developer made early repayment of HK$3.2 billion of a five-year syndicated loan of HK$15.3 billion due in January 2024, bringing the early repayment to HK$7.2 billion so far, the person said, adding that the company plans to to pay the remaining amount. amount by the end of this year.

Cailianshe and Debtwire were the first to report in- and out-of-pocket payments, respectively. Longfor declined to comment.

(Reporting by Claire C. in Hong Kong and Shuyan Wang in Beijing) Additional reporting by Yuhan Lin in Beijing and Hongwei Lee in Shanghai; Editing by Jacqueline Wong, Shri Navaratnam, and Simon Cameron Moore

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