© Reuters. A view of an under-construction residential development by Country Garden in Shanghai, China February 29, 2024. REUTERS/Nicoco Chan
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By Marc Jones, Xie Yu and Scott Murdoch
LONDON/HONG KONG (Reuters) – A liquidation petition filed against China’s Country Garden will ramp up pressure on the embattled developer to come to the negotiating table for debt restructuring talks, some of its offshore creditors, advisers, and analysts said.
The liquidation order against peer China Evergrande (HK:) in January will also inject urgency into Country Garden to start formal discussions with creditors, they said.
Country Garden said on Wednesday a liquidation petition had been filed against it in a Hong Kong court for non-payment of a $205 million loan by a creditor, Ever Credit Limited, a unit of Hong Kong-listed Kingboard Holdings. The court hearing has been set for May 17.
“These winding up petitions are often used as a tactic (by the bondholders and their advisers) to get the chairman back to the negotiating table,” said Omotunde Lawal, head of emerging markets corporate debt at Barings in London.
She added that “no one wants to go through the winding up process” because it has knock-on effects for the property developers’ onshore businesses and causes everything “to grind to a halt”.
Foshan, Guangdong-based Country Garden, China’s biggest private property company by sales, got entangled in the country’s spiralling real estate liquidity crisis that began in 2021. The developer’s $11 billion worth of offshore bonds is now deemed to be in default. Its total liabilities are close to $200 billion.
China’s property sector, which accounts for a quarter of the world’s second-largest economy, 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 since then, and they have either launched or are in the process of starting debt restructuring processes to avoid facing bankruptcy or liquidation proceedings.
Evergrande, the world’s most indebted developer with $300 billion in liabilities, was ordered to be liquidated by a Hong Kong court.
The long-drawn, and in some cases, financially unviable restructuring processes have frustrated offshore creditors, many of whom are looking at the prospects of massive haircuts on their investments.
“It is a good thing that some creditors are taking actions and putting more pressure on Country Garden to get them to the negotiating table … the sooner creditors can lock some terms, the better,” said a Hong Kong-based Country Garden bondholder.
The bondholder could not be named as they were not permitted to speak to media.
Country Garden and Kingboard did not respond to requests for comment from Reuters.
COUNTRY GARDEN VS EVERGRANDE
Country Garden said this week it would oppose ‘vigorously’ the petition filed by the Kingboard unit, and that it was working on its debt restructuring program and hoped to update the market on the terms as soon as ‘practicable’.
Its debt restructuring process kicked off in recent weeks with the appointment of financial and legal advisers.
At least 20 Hong Kong-listed Chinese real estate developers have defaulted on dollar bonds, according to a Reuters tally, which has required them to enter into restructuring talks with creditors or face liquidation.
While the talks are becoming increasingly common, only Sunac has completed its $9 billion debt restructuring deal last year.
“In general, it is still in creditors’ best interest to negotiate a restructuring deal than push for liquidation,” said KT (NYSE:) Capital Group senior researcher Fern Wang, who publishes on Smartkarma.
Industry observers expect Country Garden’s restructuring process and proposal to be more favourable for creditors than Evergrande’s, which failed to get approval from its bondholders before its liquidation was ordered.
Country Garden’s total liabilities are only two-thirds of Evergrande’s. And it has more equity options to leverage and offer to creditors, given it still has a market value of HK$18 billion ($2.30 billion) and owns a property management unit worth HK$20 billion, analysts said.
Country Garden founder Yeung Kwok Keung, whose company built its scale by acquiring cheaper and vast amounts of land from local government, and was seen as a top philanthropist in China, is also said to have strong ties with the authorities.
In comparison, Evergrande chairman Hui Kai Yan is now under investigation for suspected crime, a move that also put roadblocks in its restructuring process.
