Chinese property developer Country Garden suffered losses of Rmb48.9 billion (€6.1 billion) in the first half of the year, highlighting the challenge facing the company as it battles for survival amid a liquidity crisis across the country’s real estate sector.
The results released on Wednesday reflected a bleak six months for the property group, which is the country’s largest private developer by sales and was until recently considered safer than many of its peers.
Country Garden’s highest-ever losses also illustrate the dire outlook for an industry typically responsible for more than a quarter of economic activity in China. The company had reported a loss of Rmb6.7 billion for the second half of 2022 after recording a Rmb612 million profit for the previous six months.
The developer said revenues in the first half of this year increased 39 per cent to Rmb226 billion – but added that to “ensure punctual delivery of finished properties” it had “struck a balance between sales volume and selling price at some of its property projects”.
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Concerns over Country Garden’s finances grew earlier this month when it missed coupon payments on international bonds. On Tuesday, the developer asked Chinese creditors for a 40-day grace period on a renminbi bond maturing next week.
The company’s woes are the latest in a two-year real estate liquidity crisis that began with the default of developer China Evergrande in 2021 and has this summer showed signs of spilling over into the Chinese investment industry.
Country Garden said it had liabilities of about Rmb1.36 trillion as of the end of the first half of 2023. It said it would “consider adopting various debt management measures to resolve” what it described as “phased liquidity pressure”.
Beijing cracked down on leverage across the country’s developers early in the coronavirus pandemic, but has since been forced to ease its approach amid a slowdown that shows few signs of improving.
In a move that reflected the pressure on authorities, the southern cities of Guangzhou and Shenzhen on Wednesday eased mortgage lending conditions for first-home buyers. Caps on bank mortgage lending were originally part of a wider approach designed to address overheating home prices.
A prolonged slowdown has since hit housing prices amid collapsing sales and delays to construction of new apartments.
The government has stopped short of any bailouts, but its approach towards Country Garden is being closely watched.
Chinese developers face a $38 billion (€34.8 billion) wall of renminbi and dollar bond payments due over the next four months, according to data from Dealogic.
“Developer defaults will certainly continue as almost all private developers face cash flow pressure that isn’t going away any time soon,” said Bruce Pang, chief economist for Greater China at JLL. “Any policy support that does come will take time to feed through to cash flow, home sales and new construction starts.”
Country Garden had planned to raise $300 million from a share offer in late July, but abruptly cancelled the deal at the last minute.
The developer also announced plans on Wednesday to issue 270 million Hong Kong dollars (€31.5 million) of new shares in Hong Kong at a 15 per cent discount to its closing price on Tuesday, with all money raised to be earmarked for repayment of existing loans. – Copyright The Financial Times Limited 2023
