Country Garden Selling $360M in Discounted Shares to Aid Offshore Refinancing

Country Garden Holdings, long considered one of the healthier specimens among China’s ailing developers, plans to sell HK$2.83 billion ($361 million) in new shares at a discount to shore up its decaying financial position.

Guangdong-based Country Garden will place 870 million shares at a price of HK$3.25 each, representing a 12.6 percent markdown to Tuesday’s closing price of HK$3.72, the builder said Wednesday in a filing with the Hong Kong stock exchange.

The net proceeds of HK$2.79 billion are earmarked for refinancing existing offshore indebtedness, as well as general working capital and future development purposes, as China’s top developer by contracted sales seeks to avoid the fate of defaulting rivals like Evergrande, Sunac and Guangzhou R&F.

“The directors consider that the placing represents an opportunity to raise capital for the company while broadening its shareholder and capital base,” president and executive director Mo Bin said in the filing.

Junk Jitters

A downgrade to junk status by Moody’s Investors Service last month rattled investor confidence in Country Garden, which maintained its leading position among mainland developers in the first half of the year despite a 38.5 percent year-on-year sales decline to RMB 184.8 billion (now $27.3 billion).

Moody’s cited Country Garden’s “declining property sales and deteriorating financial metrics”, as well as “weakened access to long-term funding”, as reasons for the downgrade.

“While Moody’s expects Country Garden to maintain a strong market position and good liquidity, the negative outlook reflects Country Garden’s reducing liquidity buffer and financial flexibility, driven by falling property sales and continued weak market sentiment in the next 6-12 months,” Moody’s senior vice president Kaven Tsang said in June.

Responding to the junk downgrade, the developer chaired by Yang Guoqiang characterised the credit agency’s move as driven by a sector-wide slowdown, noting the “slower-than-expected pace of improvement to the industry’s sales performance and financing environment”.

“The company is in stable operation and financial conditions,” a spokesperson told China’s Securities Daily at the time. “At the same time, as one of China’s first batch of private real estate enterprises entitled to issue corporate bonds with credit protection mechanisms, the company successfully issued a RMB 500 million corporate bond on 20 May.”

Precarious Climate

The latest capital raise by Country Garden comes at a moment of heightened peril for the developer.

Country Garden’s $550 million offshore bond maturing in April 2024 fell to a record low of nearly 33 cents on the dollar last week from close to par at the start of 2022, Bloomberg reported, while the group’s HKEX-listed shares are down more than 52 percent for the year.

The developer announced RMB 34.5 billion in contracted sales for the month of June, down more than 35 percent from the same month a year earlier, after posting 57 percent and 50 percent year-on-year declines in April and May.

Also in June, Country Garden moved forward with a voluntary offer for an early buyback of a set of offshore bonds, with the group looking to repurchase $411 million of the principal from holders agreeing to the early redemption.