Country Garden’s stock prices plummet after bond trading stops, sparking more economic malaise

HONG KONG (August 14) (Reuters) – Debt woes of Chinese real estate giant Country Garden (2007.HK) deepened after its internal bonds were suspended, sending its shares down 16% to a record low on Monday in a fresh blow to policymakers trying to backing down. Increase confidence in a faltering economy.

Markets remain nervous as trouble at China’s largest private real estate developer could have a chilling effect on homebuyers and financial institutions, further dampening the prospect of a near-term recovery in the sector and broader economy.

A mainstay of the Chinese economy, the real estate sector has already seen slumping sales, limited liquidity and a series of developer defaults since late 2021, with China Evergrande Group (3333.HK), the world’s most indebted developer, at the center debt crisis.

Weak external demand, tepid domestic consumption and persistent problems in the real estate sector have been key factors in the economy’s struggle to make a strong post-COVID recovery this year.

The collapse in Country Garden follows another weak set of data last week and increases pressure on policymakers to restore confidence in the economy, as more private property firms approach a tipping point if fiscal support does not materialize soon.

Country Garden shares were down 16.3% at HK$0.82 by noon, pulling down the mainland Hang Seng Properties Index (.HSMPI), which fell 3.9%. The stock has lost nearly 50% so far this month.

Shares of its property management unit Country Garden Services (6098.HK) fell more than 10%. According to company registration portal Qichacha, a service unit of Country Garden has offloaded its 51% stake in a Wuhan-based network technology company, while Country Garden Services’ strategic CEO has also resigned from the company’s chairman.

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

Country Garden’s overseas bonds also eased, with a few trading at the lower end of 6 cents against the dollar earlier. Since then, most of them have held together quite a bit.

In separate filings over the weekend, the company said it would suspend trading in 11 of its domestic bonds starting Monday, in a move traders said typically indicates plans to seek a payment extension.

In September alone, Country Garden may need to repay more than 9 billion yuan ($1.25 billion) in inland bonds.

The suspension of its internal bonds followed a report by Chinese media outlet Yicai on Friday that the company was heading for a debt restructuring, after it defaulted on two dollar bonds due Aug. 6 totaling $22.5 million.

Once considered a more financially secure developer, Country Garden’s woes add to spillover concerns across a property market already grappling with weak buyer demand.

“Problems in the sector have been brewing for a long time and have killed off the wealth effect among investors, and no one wants to buy property now,” said Dickie Wong, chief executive at Kingston Securities.

‘A decisive moment’

Wong said the sector’s impact on the economy had reached a “critical moment” and that regulators should implement more policies, including lowering interest rates and reserve ratios.

China’s economy grew at a subdued pace in the second quarter as demand at home and abroad weakened, leading top leaders to promise more political support and analysts to cut growth forecasts for this year.

State-owned China Jinmao Corporation (0817.HK) said in a statement on Sunday that it expects to post an 80% drop in net profit in the first half of this year, due to lower gross margin on some projects and lower land. development proceeds. Its Hong Kong-listed shares fell more than 7% on Monday.

The shares and bonds of Longfor Group (0960.HK) and Seazen Group (1030.HK), the two largest private developers considered to be financially healthy, have come under pressure since the emergence of Country Garden’s debt problems. They fell 1.7% and 5.7%, respectively, on Monday.

In a bid to boost market confidence, Longfor transferred funds worth 1.7 billion yuan ahead of the repayment date for an internal bond maturing on Thursday, a source familiar with the matter said.

The Beijing-based developer made early repayment of HK$3.2 billion of a five-year syndicated loan of HK$15.3 billion due in January 2024, the person said, bringing the early repayment to HK$7.2 billion so far, the person said. Adding that the company plans to pay the remaining amount. by the end of this year.

Cailianshe and Debtwire were the first to report in- and out-of-pocket payments, respectively. Longfor declined to comment.

Reporting by Claire C. Additional reporting by Johan Lin in Beijing; Editing by Jacqueline Wong and Shri Navaratnam

Our standards: Thomson Reuters Trust Principles.