A collapse of Country Garden would have catastrophic repercussions for China’s financial system and economy, as would its heavily indebted rival Evergrande.
Chinese real estate giant Country Garden, which is facing crisis, has announced “great doubts” about its bond repayments, exacerbating concerns about China’s heavily indebted real estate sector.
The company said in a statement published by the Shanghai Stock Exchange on Wednesday that “there are great doubts at the present time regarding the payment of the company’s bonds.”
The company, which was included in the Forbes list of the 500 largest in the world, had expected to record billions of dollars in losses, with the risk of defaulting on payments.
A collapse of Country Garden would have catastrophic repercussions for China’s financial system and economy, as would its heavily indebted rival Evergrande.
The privately held company has long been considered financially sound but last week failed to make two bond payments. After a 30-day grace period, you risk defaulting in September if you are still unable to pay.
Country Garden announced at the end of last week that it would suspend trading of its internal bonds as of Monday, in a decision that is likely to raise market concerns, as the company reports that the value of its debt amounted to about 1.15 trillion yuan ($159 billion) in late 2022.
The pressure on the company is exacerbated given that it is expected that its bonds will mature at a value of 31 billion yuan ($4.27 billion) in 2024, according to Moody’s credit rating agency, which downgraded its rating last Thursday to “Caa2”, which means “very high credit risk”. “.
Reforms in the Chinese housing sector in the late 1990s led to a boom in the real estate sector, which was contributed to by social traditions that consider owning a property a condition for marriage.
However, in recent years, Beijing has come to regard the huge debts accumulated by major companies in the sector as an unacceptable source of danger to the state’s financial system and its overall economic health.
In an effort to reduce the sector’s indebtedness, the authorities have gradually tightened, since 2020, the conditions for developers to obtain loans, which has led to drying up the financing sources of the already indebted companies.
This was followed by several companies, especially Evergrande, announcing their default, which undermined investor confidence and had a negative impact on the sector.
The collapse of the once thriving sector comes on top of a general economic slowdown in China.
2023-08-16 17:15:00
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