China’s Largest Developer Sees Stock Drop 7.59% After $300M Share Sale Nixed

Investors drove shares in Country Garden Holdings down by as much as 11 percent on Tuesday after the company confirmed the cancellation of a share sale aimed at bringing in a reported HK$2.34 billion ($300 million) in cash.

“The Company wishes to clarify that as at the date of this announcement, no definitive agreement has been entered into with respect to the Proposed Transaction and the Company is not considering the Proposed Transaction at this stage,” the developer announced to the Hong Kong exchange on Tuesday morning.

The company’s stock regained some of its value to close Tuesday down 7.59 percent. With Country Garden having seen its contracted sales decline 54 percent in the first six months of the year, according to unaudited statistics, investors are seen to be worried about the company’s ability to meet $2.9 billion in bond obligations coming due this year.

The Guangzhou-based builder led all developers in China last year with RMB 357 billion ($49 billion) in contracted sales, but that figure was down nearly 36 percent from its 2021 results, and with revenues dropping further this year, the company warned on Monday that it expects to report a loss for the first six months of 2023.

Facing $1.6B in Offshore Obligations

In warning of its first-half loss on Monday, Country Garden said, “the Company will actively consider taking various countermeasures to ensure the security of cash flow, including but not limited to reducing various operating expenses, accelerating loan collection arrangements, actively expanding financing channels, and managing and optimizing debt repayment arrangements.”

With the JPMorgan Chase-managed share placement having fizzled, Country Garden’s bonds are also under pressure with the company’s US dollar note due in January falling 2.35 cents on Tuesday to 32.5 cents, according to Bloomberg.

Country Garden has managed to avoid the defaults which have plagued one-time rivals such as China Evergrande and Shimao Group, however, it faces RMB 16.5 billion in onshore bonds maturing this year, according to Bloomberg, with the company saying in its Monday announcement that, “it will actively seek guidance and support from the government and regulatory authorities.

In addition to its domestic obligations, Country Garden has the equivalent of $397 million in offshore bonds maturing this year, plus its $1 billion in USD notes due on 27 January. The company faces interest payments due on offshore notes between now and 31 December equivalent to over $208 million to bring its total offshore bond obligations within the next six months to at least $1.6 billion, according to Mingtiandi calculations.

Chilly Market Sickens Top Developer

In warning of its loss on Monday, Country Garden pointed to a declining market as undermining its earnings.

“The expected net loss was primarily attributable to the decrease in gross profit margin for real estate business and the increase in provision of impairment for property projects under the impact of the downward trend in sales of the real estate industry; and the expected net foreign exchange losses due to the fluctuations of foreign exchange,” the company said.

That market chill looks to be worsening as 2023 heads into its second half, with statistics released by China Real Estate Information Corp on Tuesday showing mainland home sales taking their biggest drop in a year during July.

Contracted sales by China’s top 100 developers fell 33.1 percent last month, compared to a year earlier, and were down 33.5 percent compared to June’s total, the data provider said.

The debt crisis among China’s developers, coupled with an economy which is underperforming expectations of a post-pandemic rebound, are undermining homebuyer confidence, with the country’s political leadership now taking steps to revive a sector it once saw as overheated.

On 24 July, China’s politburo gave the green light for adjustments in real estate policies, and on Thursday, the Ministry of Housing and Urban-Rural Development announced plans to ease purchase restrictions on homeowners seeking to buy additional homes and reducing downpayment requirements for first-time buyers.

On Monday the State Council, equivalent to the nation’s cabinet, said that cities should roll out policies to support property markets, according to official CCTV reports.