China's biggest private property developer faces liquidation
Chinese property giant Country Garden Holdings is in hot water as creditor Ever Credit Limited, part of Kingboard Holdings, has filed a liquidation petition against it for not paying back a $205 million loan. This adds to China's ongoing real estate sector crisis and raises more concerns about the industry's debt situation. Country Garden is determined to fight the petition and will continue to work on its restructuring plan.
Shares fall as court hearing set for May 17
Country Garden's shares took a hit, dropping over 12% in early trading, while the Hang Seng Index went up by 0.2%. At the time of writing, the stocks traded at HK $0.64, which is 11.11% lower than last session. The Hong Kong Stock Exchange has set a court hearing for May 17 to address the liquidation issue. This comes as Beijing is working hard to boost confidence in the property sector, which makes up a quarter of China's GDP.
Debt restructuring amid industry crisis
Since 2021, China's property industry has faced multiple crises due to stricter regulations on debt-fueled construction, causing a liquidity crunch. Many developers have defaulted on repayments and are either launching or going through debt restructuring to avoid bankruptcy or liquidation. Last month, a Hong Kong court ordered the liquidation of China Evergrande, the world's most indebted property developer. Country Garden is currently collaborating with offshore creditors on its restructuring plan and hopes to announce terms as soon as possible.
Company response and advisors appointed
Country Garden believes that the radical measures taken by a single creditor won't have a significant impact on the company's guaranteed delivery of buildings, operations and overall restructuring of overseas debts. It has brought on KPMG and law firm Sidley Austin as advisors to review its capital structure and liquidity position, and come up with a comprehensive solution. In October, Country Garden failed to make a $15 million bond coupon repayment, leading to the formation of ad hoc bondholder groups.
Why is China's real estate sector declining?
China's real estate sector comprises almost a quarter of the Asian giant's GDP. On a macroeconomic level, the crisis in the sector is explained by a dip in demand for housing. In early 1990s, the real estate began to boom due to increased rural-urban migration and rapid industrialization. As villagers flocked to cities, the government provided affordable housing on heavy discounts. But in recent years, urban population is higher than rural and reduced housing demand is hampering real estate growth.
