Country Garden Touts Plan to Cut $11.6B in Offshore Debt as Home Sales Evaporate

China’s Country Garden Holdings on Thursday unveiled a restructuring plan aimed at cutting its offshore debt by up to $11.6 billion, but the troubled developer and its rivals have given little cause for confidence as their home sales continued to slide in 2024.

The proposed rejig includes a maturity extension of up to 11.5 years and a targeted reduction in the weighted average borrowing cost from 6 percent to 2 percent, Country Garden said in a filing with the Hong Kong stock exchange. The Foshan-based builder also talked up the plan’s support from seven banks that collectively hold or control 48 percent of the outstanding principal of three syndicated loans of the company with a total outstanding principal of $3.6 billion.

In addition, Country Garden’s controlling shareholder, chairwoman Yang Huiyan, is considering converting an existing shareholder loan with an outstanding principal amount of $1.1 billion into shares of the company or its subsidiaries.

“This proposal reaffirms the controlling shareholder’s confidence in the long-term success of the group,” Country Garden president Mo Bin said in the filing.

Talks Ongoing

Under the proposed restructuring, offshore bond holders would be given options including cash payment at a minimum 90 percent haircut, conversion of mandatory convertible bonds into 100 percent equity or acceptance of new debt instruments with extended maturities.

Country Garden acknowledged “constructive dialogues” with other offshore creditors, including holders of 30 percent of the outstanding principal amount of US dollar senior notes and Hong Kong dollar convertible notes with a total outstanding principal of $10.3 billion.

A group representing holders of more than 30 percent of Country Garden’s offshore notes has not yet agreed to the developer’s restructuring proposal, according to a Bloomberg account on Friday. Discussions between Country Garden and the creditor group are said to have slowed in the final days of December over terms such as pricing for conversion of existing bonds to new notes and repayment dates.

Reuters first reported last month that Country Garden had submitted preliminary terms of a restructuring plan to creditors in late October, with the proposal said to have come with a lowered cash flow projection than previous estimates shared with creditors earlier in 2024.

This week, Country Garden forecast a net cash surplus available to be distributed offshore during 2024-39 in a range of RMB 20 billion to RMB 25 billion ($2.7 billion to $3.4 billion). For its 29 international development projects, attributable levered free cash flow during 2024-40 is estimated in a range of $2.6 billion to $3 billion.

During 2025-33, Country Garden expects to raise between $600 million and $800 million in net disposal proceeds through divestment of minority financial investments. In late December, the group agreed to sell its 1.56 percent stake in mainland chipmaker Changxin Technology to a state-owned firm for RMB 2 billion ($270 million).

“The company is committed to use these disposal proceeds to fund the restructuring proposal and support debt servicing obligations under the new debt instruments following the consummation of the restructuring proposal,” Country Garden said.

Pivot Tough to Spot

China’s onetime largest developer continues to issue monthly updates showing no evidence that a government-directed stimulus blitz is bearing fruit, with Country Garden’s latest statement reporting that contracted sales plunged 50.5 percent year-on-year in December to RMB 3.42 billion.

By comparison, the builder’s peak monthly performance of the last two years was RMB 25 billion in contracted sales recorded in March 2023. Monthly sales dwindled to RMB 5.5 billion in January 2024 and never improved on that figure for the duration of last year, with the annual total sliding nearly 73 percent to RMB 47.2 billion.

Mainland peers have fared poorly as well, according to data provider China Real Estate Information Corp, with new home sales of China’s top 100 developers falling more than 28 percent last year, worsening from a 16.5 percent dip in 2023.

Country Garden announced in March that it would delay the publication of its 2023 financial results, citing the need to collect more information to make appropriate accounting estimates and judgments. The postponement led to the suspension of trading in Country Garden’s Hong Kong-listed shares from 2 April.

In February, the developer was hit with a winding-up petition in Hong Kong filed by a unit of Kingboard Holdings, due to non-repayment of a term loan worth HK$1.6 billion ($204 million) including accrued interest. The hearing is scheduled to resume on 20 January.