HONG KONG - Chinese developer Country Garden said on Feb 28 a liquidation petition has been filed against it for non-payment of a US$205 million (S$275.9 million) loan, clouding its debt revamp prospects and undermining Beijing’s effort to restore confidence in the property sector.

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

The petition is set to revive home buyer and creditor concerns about the Chinese property sector’s debt crisis at a time when Beijing is trying to boost confidence in the industry that accounts for a quarter of China’s gross domestic product.

What do we know about Country Garden?

Until 2023, Country Garden was the largest Chinese developer by sales. The company was considered financially sound compared with peers like China Evergrande Group, which defaulted on its debt in 2021.

While Country Garden’s liabilities are only 59 per cent of those at Evergrande, it has 3,103 projects across China, compared with around 800 for Evergrande – making the company matter to systemic stability while also fuelling contagion fears as it shows signs of financial stress.

A liquidation of Country Garden would exacerbate the real estate crisis, put more strain on its onshore lenders, and could delay the prospect of a recovery of not only the property market, but the overall Chinese economy.

Where are we in Country Garden’s debt crisis?

Country Garden in October missed a US$15 million bond coupon repayment, and a group of so-called ad hoc bond holders was formed for negotiations to prepare a road map for repayment of its US$11 billion offshore debt that is deemed in default.

The developer in January 2024 said that it had appointed KPMG Advisory (China) as its principal financial adviser for its offshore debt restructuring, replacing Houlihan Lokey, which it picked in 2023.

How bad is Country Garden’s financial situation?

Country Garden’s total liabilities were about US$194 billion at the end of June 2023, unchanged from the end of 2022.

It faces 108.7 billion yuan (S$20.6 billion) worth of debts due within 12 months, while its cash levels are around 101.1 billion yuan.

The company’s liquidity stresses became public in August 2023 after it missed two dollar coupon payments.

Country Garden chairwoman Yang Huiyan said in January 2024 that the market did not recover as expected in 2023 and was still in correction.

Will Beijing bail Country Garden out and what is the outlook for the developer?

Beijing has so far not directly bailed out any private Chinese developer despite some of them coming to the brink of collapse since the property crisis hit the economy in 2021, after a regulatory crackdown on developers’ accumulation of debts.

For now, Beijing is scrambling to introduce a string of measures –including offering white list financing support to select property projects, mortgage rate cuts and an easing of home purchase restrictions – to revive the property market and prop up the sputtering economy.

Country Garden on Feb 28 said 135 of its projects had been listed by Chinese local governments as suitable for financing support.

The country’s central bank two weeks ago announced its biggest ever reduction in the benchmark mortgage rate, although analysts believe its impact on home prices will be limited given existing mortgage holders will not benefit until 2025.

China’s new home prices slowed their month-on-month declines in January, with the biggest cities seeing some stabilisation, but the nationwide downward trend persisted despite Beijing’s efforts to revive demand. REUTERS