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Evergrande’s blows weaken Country Garden’s dollar bonds

By Yashasvini on Jan 17, 2022 | 04:37 AM IST

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• Country Garden’s longer-dated bonds fell to nearly 69 cents on the dollar as of late Friday. 

• Its share price fell nearly 8.1% to HK$5.87 in Hong Kong

China’s largest developer by contracted sales witnessed a steep decline in its dollar bond, which is rated investment-grade by two of the three major global credit-rating firms, on Monday.

Country Garden Holdings, was China’s largest developer by contracted sales last year, according to China Real Estate Information Corp. Its dollar bonds were largely insulated from the effects of the Chinese real estate crisis and are among the few privately-owned companies in the sector with much healthier credit ratings.

On Monday, some of Country Garden’s dollar notes dropped to record lows after a report suggested that the firm was unable to garner investor support for a possible convertible bond deal. Its longer-dated bonds fell to nearly 69 cents on the dollar as of late Friday. 

Government curbs on borrowing and declining home sales have crippled China’s real estate market. The industry’s biggest offshore borrowers, Kaisa Group Holdings Ltd. and China Evergrande Group are set for parallel debt workouts. 

Also read: Chinese real estate mogul Kaisa defaults on $400M bond payments

Meanwhile, industry behemoths such as Shimao also crumbled as the faith in the Chinese real estate developer’s ability to withstand liquidity pressures wanes.

Reviewing the stockpiles

Bloomberg reported that Country Garden has 3,000 housing projects located in almost every province in China. It has $1.1 billion of dollar bonds due this year and had 186 billion yuan ($29.3 billion) of available cash as of June 2021. 

With a $411 million dollar debt due next week and another $700 million due in July, the company said it would use its own cash to repay the bond next week, and has prepared the funds needed. Wall Street Journal reported that it will arrange payments for the July bond based on market conditions at that time.

Even though it doesn’t have any payments due in the near future, its limited access to funding can pose a risk to the company’s financial health with major economic and social consequences.

The company has a Baa3 credit rating from Moody’s Investors Service and an equivalent BBB- grade from Fitch Ratings, both on the lowest rung of investment grade. S&P Global Ratings has given the company a BB+ score, the highest non-investment-grade rating.

Country Garden’s share price slumped 8.1% to HK$5.87 in Hong Kong, while its US$1 billion bonds due 2024 fell 11 cents to 72.888 cents on the dollar on Monday, extending its drop since early January, reported South China Morning Post.

Also Read: Evergrande’s shadow looms over Chinese property developers, latest prey is Shimao

(Inputs from Bloomberg and WSJ)

Picture Credits: The Fortune

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