China's leading property developer, Country Garden, grapples with a financial crisis as it battles the downturn in the country's real estate sector. The company is seeking to extend the repayment deadlines for its onshore bonds while also hiring financial advisors for potential restructuring. With 60% of its onshore bonds set to mature this year, the company's cash flow and operational stability hang in the balance. As investors await the first-half results, the real estate giant confronts immense challenges to navigate the evolving economic landscape.
The primary concern during the upcoming release of the first-half results of China's biggest private real estate developer, Country Garden Holdings, will be to determine the extent of its financial difficulties. The company's financial strain was brought to public attention earlier this month when it failed to make two dollar coupon payments and sought an extension for onshore private bond repayment, raising concerns about the potential ripple effects on China's troubled property market and the broader economy.
Shortly before revealing the results, Country Garden revealed its plan to release new shares valued at HK$270 million ($34.4 million) to an investment unit of Kingboard Holdings, a Hong Kong-based manufacturer. This move aimed to decrease its outstanding loan to the unit, bringing it down to HK$1.6 billion. The company stated that this issuance was intended to conserve cash resources and lower its leverage. These new shares, comprising 1.25% of the expanded share capital, would be offered at HK$0.77 per share, representing a 15.4% discount compared to Tuesday's closing price.
As of the close of 2022, Country Garden had accumulated total debts of approximately $194 billion. The company had previously indicated an expected net loss of up to 55 billion yuan ($7.55 billion) for the first half of the year, marking a significant drop from the 6.7 billion yuan loss recorded in the latter half of 2022 and a substantial decrease from the 1.9 billion yuan net profit reported one year prior.
Similar to its counterparts, the company, which held the title of China's largest property developer in terms of sales volumes until this year, has faced challenges due to declining profit margins resulting from a decrease in property sales and home values in China's slowing economy. Reduced sales, combined with more limited access to fresh capital in recent years, exacerbated its financial strain.
An analyst from a foreign investment bank noted that investors were seeking specific information regarding short-term debt and new bank loans to gain a better understanding of Country Garden's cash flow. A company official mentioned that a significant portion of its funds is tied up in the escrow accounts of project contractors, primarily earmarked for the delivery of homes over the next two years, leaving limited cash available for debt repayment at the corporate level.
Approximately 60% of the company's outstanding domestic bonds are set to mature within the remaining months of this year. The company official suggested that if the company successfully extends the repayment deadlines for these bonds, it could potentially enhance its operational and cashflow situation. The official chose not to disclose their name due to a lack of authorization to speak to the media.
JP Morgan has estimated that completing all of the company's ongoing projects, including both sold and unsold residential units, would require an expenditure of approximately 316 billion yuan. Country Garden has refrained from providing comments prior to its earnings release. Additionally, the company has decided not to hold meetings with analysts following the earnings announcement, marking the first time it has opted out of these conferences in many years.
China International Capital Corporation (CICC) has been retained as a financial advisor by Country Garden, and the company was anticipated to initiate a restructuring process in the near future, as reported by Chinese news outlet Yicai.
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