Chinese developer Country Garden boosted by vote to restructure bond repayment

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Shares in Chinese property developer Country Garden rose almost 20 per cent on Monday after creditors agreed over the weekend to restructure the repayment of a renminbi-denominated bond that was due on Saturday.

The approval from bondholders provides the cash-strapped company with more time as it rushes to meet domestic and international repayment obligations.

Country Garden, which has become the focus of international investors trying to gauge the state of China’s vast property sector, said in a statement to bondholders that it had secured 56.08 per cent approval from participating Chinese creditors in a vote.

Creditors granted an extension for a nearly Rmb4bn ($550mn) bond that had been set to mature on Saturday and allowed the developer to repay the debt in a series of instalments over the course of three years.

The news sent the developer’s Hong Kong-listed shares up as much 19.1 per cent on Monday. The stock is still down more than 60 per cent in the year to date.

Country Garden, once considered one of the Chinese developers least likely to default, has struggled to meet recent repayment obligations. It missed interest payments of $22.5mn on two $500mn international bonds about a month ago, triggering a broad sell-off in shares of property groups already under pressure from widespread defaults.

Developer stocks listed in Hong Kong rose as much as 10.5 per cent on Monday following action by Chinese authorities to lower downpayment requirements nationwide for first-time and second-time homebuyers.

The pace of mortgage rule easing to encourage homebuyers has picked up markedly in recent weeks after years of a punishing crackdown on excess leverage in the sector. Major cities including Beijing, Shanghai, Guangzhou and Shenzhen lowered minimum mortgage interest rates for first-time homebuyers last week.

Ting Lu, an analyst at Nomura, said while the recent easing marked a “significant step in stimulating the property sector”, these measures were “still not enough” to pull it out of a protracted liquidity crisis.

Dealogic data shows Chinese developers face a $38bn wall of renminbi and dollar bond payments coming due over the next four months, while Fitch Ratings warned last week that annual new home sales in China could fall by as much as 15 per cent.

The rating agency also warned that the situation at Country Garden “may exacerbate weakness in [Chinese] homebuyers’ sentiment”.

Country Garden, which alone had liabilities of about Rmb1.36tn as of the end of the first half of 2023, faces more repayment pressure this week. The grace period for the dollar bond payments it missed a month ago is set to expire on Wednesday.