Country Garden makes bond coupon payments before end of grace period -source By Reuters

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© Reuters. FILE PHOTO: A construction site of residential buildings by Chinese developer Country Garden is pictured in Tianjin, China August 18, 2023. REUTERS/Tingshu Wang/File Photo

By Xie Yu

HONG KONG (Reuters) -China’s largest private property developer, Country Garden, has made interest payments on two U.S. dollar bonds, due last month, on the day a grace period was due to end on Tuesday, a person close to the company said.

Country Garden failed to pay coupons on the bonds totalling $22.5 million due on Aug. 6, exacerbating market fear of the developer’s cash situation.

Both payments had 30-day grace periods, ending on the global Tuesday.

Failure to make the latest payments would have raised the risk of default and demands by holders of other dollar bonds to accelerate payments, bondholders and lawyers said.

Country Garden did not immediately respond to a request for comment.

The deadline comes after Country Garden on Friday won approval from onshore creditors to extend a private bond worth 3.9 billion yuan ($536 million).

The developer’s share price fell as much as 5% in early Tuesday trade, while Hong Kong’s Mainland Properties Index was down 2.5%. Chinese property shares had rallied on Monday.

Country Garden had not missed a debt payment obligation, onshore or offshore, until it failed to pay coupons on the two-dollar bonds last month after slowing demand for new homes translated into tighter cash flow.

As well as the payments due on Tuesday, Country Garden has about $162 million of offshore bond interest payments due during the rest of the year, showed data from researcher CreditSights.

Country Garden’s predicament highlights the fragile state of China’s real estate sector, which accounts for roughly a quarter of the world’s second-largest economy and whose situation has deteriorated since a government campaign against high leverage began in 2021.

Making matters worse is a lacklustre post-pandemic economic recovery. Services activity expanded at its slowest pace in eight months in August, a private-sector survey showed on Tuesday, as weak demand continued to dog the economy and stimulus measures failed to meaningfully revive consumption.

Latest stimulus included lowering existing mortgage rates and preferential loans for first-home purchases in big cities.

“With domestic demand weak and house prices on the slide in smaller Chinese cities in particular, there are still worries about the fragility of the real estate sector,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown, U.K.

“Stimulus efforts to increase mortgage lending are welcome but a much larger package of support is likely to be needed to restore more confidence in the sector, and put exposed property firms on a firmer footing.”



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