Country Garden Real Estate Group has shown signs of deeper financial challenges as the company halted trading of 11 onshore bonds beginning Monday, prompting investors to drive its shares to their lowest level since the company’s 2007 IPO.
Ranked as China’s largest real estate developer in 2022, Country Garden revealed the trading halt in a filing Sunday evening. Resumption of trading of the bonds, which are listed on the Shenzhen Stock Exchange and Shanghai Stock Exchange, “will be determined separately.”
Country Garden shares plummeted as low as HK$0.79 (US$0.10) on the Hong Kong exchange and closed at HK$0.82 apiece, falling more than 18 percent during the day, with the company’s stock now down 54.66 percent from their HK$1.50 value per share a month ago. Analysts speculated that the bond suspension means that company is now heading for a restructuring.
With home sales in China dropping 28.1 percent in June from a year earlier, the troubles at Country Garden are spreading concerns of a larger contagion, with such fears underscored on Monday when state-backed developer Sino-Ocean Group issued a profit warning and said it has suspended trading on a set of offshore bonds after it had defaulted on interest obligations due on the notes.
Underestimating the Downturn
The disclosure came just three days after Country Garden warned of an expected loss of around RMB 45 billion to RMB 55 billion ($6.26 billion to $7.65 billion) in the first six months of 2023. Early last week the company failed to pay $22.5 million in interest due on two sets of US dollar bonds.
On Friday afternoon the company apologized to stakeholders saying that, “Although it had predicted the current round of market adjustment, it had underestimated the depth, intensity and duration of the market downturn.”
“Although the company has gone all out to save itself, the market as a whole has not yet recovered, the absolute scale of the industry has declined, and it will take time to restore confidence in the capital market,” Country Garden chairman Yang Huiyan said in the 10 August statement.
She added, however, that the company “firmly [believes] that the real estate industry will eventually return to the track of healthy and stable development after this round of profound adjustments.”
Moody’s Investors Service on Thursday gave the company a negative outlook amid risks of defaulting after downgrading its corporate and senior unsecured bond ratings deep into junk territory.
“Despite the difficult situation in the industry, the company has always resolutely and earnestly fulfilled its own responsibilities by coordinating resources of parties concerned, and endeavored efforts to ensure delivery and operation,” the company said in the announcement, while adding that it will keep the public updated by making disclosures as required by law.
Previously held out as a model developer by the government and judged by the market to be more stable than competitors like China Evergrande Group, Country Garden’s financial struggles have sparked fresh concerns about China’s real estate industry and about the broader economy.
Those contagion fears were reflected in a set of Monday announcements by Sino-Ocean Group, with the Beijing-based developer warning that it expects to report a first-half loss attributable to shareholders of approximately RMB 17 billion to RMB 20 billion. That comes after the builder backed by China Life and Dajia Insurance lost RMB 1.1 billion during the same period last year.
The late afternoon profit warning came after Sino-Ocean had announced Monday morning that it was halting trading on a $700 million set of notes due in 2024 after defaulting on $20.94 million in interest due on the notes. Investors reacted by selling the company’s stock down by more than 5 percent on Monday to HK$0.37 per share.
On 26 July Sino-Ocean had asked holders of the 2024 bonds for an extension of the 2 August due date for the 2024 notes, however, it failed to gain adequate support for the proposal before a grace period expired on Monday. The company also is tardy in making payment on interest due 4 August on a $500 million bond due 2027, as well as for interest due on 5 August for a $600 million 2029 set of notes. Both bonds have 10-day grace periods.
In announcing the trading halt on its 2024 bonds today, Sino-Ocean said it has now received consent from enough bondholders to pass the proposed extension on repayment of the notes at a board meeting to be held on 17 August.