Chinese real estate: Country Garden is again on the razor's edge

Back to square one for Country Garden and its international creditors. China’s largest developer reportedly missed interest payments again on one of its dollar-denominated bonds on Monday. Creditors holding these securities told Bloomberg on Tuesday that they had not yet received the coupon payment due on Monday. It is a dollar bond maturing in 2025 with interest of $15.4 million. Country Garden has a 30-day grace period to pay this amount to its creditors without running the risk of default.

The company already paid a coupon on the wire in early September that was not paid on time in early August, avoiding a default on its offshore bonds that would have had the worst consequences for the Chinese economy. These debts include cross-default clauses that result in the request for early repayment in the event of default on any of the bonds.

To service its foreign currency debt, the promoter is negotiating maturity extensions on its yuan-denominated debt. Thanks to an agreement reached with local creditors on certain bonds, the country was able to release cash two weeks ago to pay the bond coupon in dollars for 22.5 million. Country Garden has made agreements about other obligations. A new compromise was reached this week on eight additional bonds, after seven last week, bringing the total amount of bonds with extended maturities to 14.7 billion yuan.

The market environment remains difficult for Chinese developers with a continued decline in sales, but the measures taken by the government to revive the sector and progress in the restructuring processes could be beneficial first steps.

A first restructuring

Sunac China Holding, another major Chinese developer in trouble, confirmed a debt restructuring deal on Monday. Creditors holding 98.3% of the total value of the bonds in question participated in the vote and approved the proposed restructuring plan, which had already been accepted by some creditors in March. The developer will seek approval of the plan from a Hong Kong court at a hearing scheduled for October 5. As part of this restructuring, part of the debt will be exchanged for convertible bonds, backed by Hong Kong-listed shares, and for new bonds with a term of two to nine years.

This is the first deal of its kind for a Chinese developer. The bankruptcy of the iconic China Evergrande, with almost $32 billion in debt, has still not been resolved. At the same time, Sunac is said to have placed itself under the protection of the US bankruptcy law under Chapter 15, as Evergrande did last month. The measure, considered a procedural formality in the restructuring processes of large offshore debts, protects non-US companies undergoing restructuring from creditors seeking to sue them or freeze assets in the United States.