Chinese property developer Country Garden Holdings is grappling with a financial setback as it warns of a potential loss and faces another ratings downgrade on its debt. After reports of missed bond payments earlier in the week, the embattled developer suffered a significant drop in its shares.
Shares Plummet Following Warning of Loss
Shares of Country Garden Holdings, traded as Country Garden 2007, plunged as much as 14% in Hong Kong on Friday. This decline adds to the difficulties the company has faced throughout the week, with shares dropping by a staggering 31%. Moody’s Investors Service downgraded the developer’s rating, pushing it further into junk territory, after it purportedly failed to make $22.5 million in interest payments due on Monday. The debts in question have a face value of $1 billion.
Anticipated Losses in the First Half of the Year
In a recent statement to the Hong Kong stock exchange, Country Garden disclosed its projections for the first half of the year. The company expects a net loss in the range of RMB45 billion ($6.25 billion) to RMB55 billion ($7.62 billion), a stark contrast to the RMB1.91 billion profit from the same period last year. This impending loss would mark Country Garden’s first interim loss since it went public 16 years ago.
The developer attributes the expected net loss to several factors. These include a decline in the gross profit margin of the real estate business, an increase in impairment of property projects due to declining sales in the industry, and anticipated foreign exchange losses resulting from fluctuations in foreign exchange rates.
Concerns for China’s Real Estate Sector
Country Garden’s current troubles have raised fresh concerns about China’s highly indebted real estate sector and the potential for broader market contagion. Similar anxieties arose in 2021 when rival developer China Evergrande Group experienced a meltdown, triggering a sell-off in China stocks that briefly caused losses on Wall Street.
The repercussions of Country Garden’s financial struggle are evident in China’s CSI 300 index, which had declined by 2.3% on Friday, resulting in a weekly loss of over 3%. The Hang Seng also finished down nearly 0.9% for the week, reflecting the market’s unease.
As Country Garden confronts these setbacks, the immediate future of the company and its impact on China’s real estate industry remain uncertain.
Speculation Surrounding Country Garden’s Financial Woes
Speculation has been building for weeks regarding the state of Country Garden, one of China’s leading real estate developers. Like many companies in the country’s real estate sector, Country Garden has been burdened by a substantial debt load acquired over the past few decades. Moreover, China’s struggle to recover from the ongoing pandemic has further hampered the industry.
In a recent statement, Country Garden acknowledged that China’s property market has yet to fully bounce back from the challenges of 2021, and it will require time for the capital markets to regain confidence. The company revealed that its available funds have been steadily diminishing due to the deterioration of sales and refinancing conditions. As a result, it is currently facing liquidity pressures in phases.
To rectify the situation, Country Garden has outlined a four-step plan. First and foremost, it pledges to exert maximum effort in ensuring the timely delivery of projects across the nation. Additionally, the company aims to address its liquidity issues through the implementation of debt management strategies. It also aims to maintain smooth operations by bolstering its net assets and land reserves. Lastly, Country Garden plans to strengthen its organization and leadership structure by establishing a special task force led by Yang Huiyan, the chairman of the board and controlling shareholder.
Yang Huiyan, with a net worth of $5.3 billion from property investments, is a key figure in these efforts. Her father co-founded Country Garden in 1992 and transferred his company stake to her in 2005. Some speculate that she might tap into her considerable wealth to assist in bailing out the struggling developer.
At its peak in early 2018, Country Garden shares reached an impressive value of over HK$16 each. However, as of Friday, they were worth just under 1 Hong Kong dollar.
Conclusion
Country Garden’s financial challenges are a reflection of the wider struggles faced by China’s real estate industry. With a concerted effort to address its liquidity pressures and rejuvenate the market, the company aims to overcome these hurdles and regain stability in the future.