(Beijing) A respite before another crucial deadline: the Chinese promoter Country Garden with astronomical debt obtained in extremis from its creditors the rescheduling of a repayment, which postpones a potential default.
The promoter, which has long been deemed financially sound, was unable in early August to repay $22.5 million in interest on loans, at a time when the real estate sector is experiencing an unprecedented crisis in China.
After record losses recorded in the first half, it had to pay this Saturday the repayment of a bond loan for a total amount of 3.9 billion yuan.
According to Bloomberg, creditors agreed on Friday evening to extend the deadline to 2026, in a vote extended twice since last Friday.
Country Garden did not immediately communicate.
The group, which was still the biggest promoter in China last year, is not out of the woods.
Another deadline looms next week for the two interest payments he missed in August.
If it doesn’t, Country Garden formally risks default because its 30-day grace period will end on Tuesday.
A default would send a shock wave through the markets and plunge a real estate sector already scalded by the health crisis and the economic slowdown in China a little more into the doldrums.
Country Garden “does not have sufficient sources of cash” to meet upcoming maturities, said rating agency Moody’s on Thursday, which downgraded the group’s strength rating by three notches.
It is now “Ca”, synonymous with “in default, with some hope of recovery”.
At the beginning of August, Moody’s had already lowered its rating for the first time.
Country Garden had a considerable debt estimated at 1430 billion yuan at the end of 2022.
At the end of June, it had 147.9 billion yuan in cash (18.6 billion euros), a sum which it uses to complete housing already paid for by the owners even before their construction.
Beijing has thus gradually tightened their credit access conditions from 2020, which has dried up the sources of financing for groups already in debt.
A wave of defaults followed, including that of the Evergrande Group, which undermined the confidence of potential buyers and reverberated throughout the sector, against the backdrop of an economic slowdown.
A bankruptcy of Country Garden would have immeasurable consequences for the financial system in China, with a lot of unfinished housing, unpaid suppliers and several tens of thousands of Chinese who may not be able to recover their money.
To reinvigorate a sector that has long accounted for a quarter of China’s GDP, several major cities, including Beijing and Shanghai, have relaxed the criteria for obtaining a mortgage, so that more households can benefit from it and thus stimulate demand.
The central bank, for its part, announced the forthcoming drop in rates on mortgage loans for first-time buyers.
But the effect of these measures is uncertain, warns economist Larry Hu of investment bank Macquarie.
They’re “not necessarily going to translate into purchases,” he said.
Potential buyers remain concerned about their financial situation, the drop in real estate prices which are causing property to lose value and the setbacks of developers.
