HONG KONG – Country Garden Holdings said on Feb 28 that a liquidation petition has been filed against the embattled developer for non-payment of a loan worth US$205 million (S$276 million), adding to the woes for China’s liquidity crisis-hit property sector.

Country Garden said in a regulatory filing to the Hong Kong Stock Exchange it would “resolutely” oppose the petition filed by creditor Ever Credit, a unit of Kingboard Holdings.

A court hearing has been set for May 17.

Country Garden’s Hong Kong shares were down 11 per cent in afternoon trade on Feb 28, compared with a 1.3 per cent loss for the benchmark Hang Seng Index.

The stock has lost over 70 per cent of its value over the past 12 months.

The petition is likely to revive home-buyer and creditor concerns about the Chinese property sector’s debt crisis at a time when Beijing is ramping up efforts to boost confidence in the industry that accounts for a quarter of the country’s economy.

It comes a month after China Evergrande Group, the world’s most indebted property developer with US$300 billion in liabilities, was ordered to be liquidated by a Hong Kong court. It now faces a complicated restructuring process that some investors think could last more than a decade.

China’s property industry has lurched from one crisis to another since 2021 after a regulatory crackdown on debt-fuelled construction triggered a liquidity squeeze.

A string of developers have defaulted on their repayment obligations and many have launched or are starting debt restructuring processes to avoid facing bankruptcy or liquidation proceedings.

By filing liquidation petitions, creditors are “applying pressure” on the defaulted developers to come up with meaningful restructuring plans or risk being liquidated, said Mr Nicholas Chen, an analyst with CreditSights. “Having said that, even if (Country Garden) was liquidated, we doubt that offshore creditors would receive much recovery proceeds given the structural subordination of offshore bond holders and that most of the developer’s assets are onshore.”

China’s new home prices continued to fall in January. Though its biggest cities saw some stabilisation, the nationwide downward trend persisted despite Beijing’s efforts to revive demand.

Many would-be home owners have been putting off purchases as indebted developers delay or suspend construction on new housing projects.

Country Garden’s debt restructuring process, which gathered momentum in recent weeks with its US$11 billion offshore debt deemed to be in default, could be clouded by the liquidation petition if it makes other creditors think twice about settling.

The developer has appointed KPMG and law firm Sidley Austin as advisers to examine its capital structure and liquidity position, and formulate what it called a “holistic” solution.

Last October, Country Garden missed a US$15 million bond coupon repayment and so-called ad hoc bond-holder groups were formed consisting of international and fund manager investors.

The developer had total liabilities of 1.36 trillion yuan (S$257 billion) as at the end of June 2023, close to its 1.43 trillion yuan of total assets.

“Country Garden has taken way too long, messing around with switching advisers and wasting time, so it’s no surprise people lose their patience and would rather liquidate them,” a Country Garden dollar bond investor said.

Country Garden said in its filing that it would continue to “proactively communicate and work with its offshore creditors on its restructuring plan” as it aimed to announce terms to the market as soon as practicable.

“The radical actions of a single creditor will not have a significant impact on our company’s guaranteed delivery of buildings, normal operations and the overall restructuring of overseas debts,” it said in a statement to Reuters. REUTERS