On Wednesday, China’s largest property developer, Country Garden Holdings, warned that if it is unable to reverse the present declines in its financial performance, the risk of it defaulting will grow, adding that the company “felt deeply remorseful” over its record loss in the first half of the year.
Between January and June, the company posted a net loss of 48.9 billion yuan ($6.72 billion). The company had posted a 612 million yuan ($84 million) net profit over the first half of last year, before posting a 6.7 billion yuan ($920 million) net loss in the second half of 2022.
The property sector’s woes in China have led to concerns it could destabilize the overall Chinese economy, which is already weakened by increasing unemployment and decreasing demand issues. Chinese authorities are beginning to take steps to try to revive the property sector, which accounts for roughly a quarter of the entire Chinese economy.
Since late in 2021, the property sector has seen a number of prominent defaults, which led to uncompleted projects, unpaid suppliers and creditors, and homebuyers refusing to pay mortgages on homes which they never received, since they were never completed or transferred to them.
The issues with liquidity in Country Gardens became widely known earlier this month, after the company missed two dollar-coupon payments, which was confirmed officially by the developer on Wednesday. The company also deepened the fears of contagion when it sought to extend an onshore private bond repayment.
In a filing, the developer said, “If the financial performance of the group continues to deteriorate in the future, the group might not be able to fulfil the financial covenants of these borrowings, which may result in default in these borrowings and cross-default in certain other borrowings.”
It added it was considering various measures to deal with the remaining overseas debts which will come due between now and June of next year, to include negotiating with onshore banks with an eye to renewing and extending existing loans.
The developer noted that first half revenues were up 40% over one year earlier, however the cost of sales had risen 73%. Total liabilities, at 1.4 trillion yuan, were unchanged from the end of 2022.
Total interest bearing debts fell to 257.9 billion yuan, with 108.7 billion yuan due within 12 months. Total cash on hand was 101.1 billion yuan.
The firm added, “The company feels deeply remorseful for the unsatisfactory performance.”
A number of offshore creditors are examining their legal options, such as forming a group if the company looks to restructure its debts.
New York law firm Kobre & Kim LLP said in an interview with Reuters on Wednesday, that it was in touch with creditors who were considering forming a group who were weighing their legal options should Country Gardens seek to restructure its debt.
Prior to its earnings announcement, shares of Country Gardens closed down 3.3% at HK$0.88.
