HONG KONG, Aug 14 (Reuters) – Chinese property giant Country Garden’s ( 2007.HK ) debt woes deepened after its onshore bond freeze, sending its shares down 16% to a record low on Monday in a fresh blow to policymakers trying to shore up. Confidence in a stuttering economy.
Markets remain jittery as trouble at China’s largest private property developer could have a chilling effect on homebuyers and financial institutions, further dampening prospects for a near-term recovery in the sector and the wider economy.
A key pillar of China’s economy, the real estate sector has already seen declining sales, tight liquidity and persistent developer defaults by the end of 2021, centered on the world’s most indebted developer China Evergrande Group ( 3333.HK ). The debt crisis.
Weak external demand, sluggish domestic consumption and persistent problems in the property sector are the main reasons the economy is struggling for a post-Covid recovery this year.
The disaster in the country garden comes after another weak set of data last week and puts more pressure on policymakers to restore confidence in the economy, as more private property firms near a tipping point if fiscal support is not implemented soon.
Shares in Country Garden fell 16.3% to HK$0.82 by midday, while the Hang Seng Mainland Properties Index (.HSMPI) fell 3.9%. The stock has lost nearly 50% so far this month.
Shares in its property management unit Country Garden Services ( 6098.HK ) fell more than 10%. A service unit of Country Garden has offloaded its 51% stake in a Wuhan-based network technology company, while Country Garden Services’ chief strategic officer has also resigned as chairman of the firm, according to company registry portal Qichacha.
The Country Garden Service did not immediately respond to a request for comment.
Country Garden’s offshore bonds also eased, with a few trading at the low end of 6 cents on the dollar earlier. Most have firmed up somewhat since then.
In a separate filing over the weekend, the firm said it would suspend trading in 11 of its onshore bonds from Monday, in a move that traders typically signal plans to seek an extension to repayments.
In September alone, Country Garden may have to repay more than 9 billion yuan ($1.25 billion) worth of onshore bonds.
Its onshore bonds were suspended on Friday after a report by Chinese media Yicai that the company was moving toward a debt restructuring, as it missed a total of $22.5 million in bond payments due on Aug. 6 of two dollar coupons.
Once considered a more financially sound developer, Country Garden’s problems are raising concerns across a property market already grappling with weak buyer demand.
“The sector’s problems have been brewing for a long time, it has wiped out the wealth effect among investors and now nobody wants to buy property,” said Dickey Wang, executive director of Kingston Securities.
Wong said the sector’s impact on the economy has reached a “critical moment” and regulators should implement more policies, including higher interest rates and reserve ratios.
China’s economy grew at a weaker pace in the second quarter as demand at home and abroad weakened, prompting top leaders to pledge more policy support and analysts to cut their growth forecasts for the year.
State-owned China Jinmao ( 0817.HK ) said in a filing on Sunday that it expects net profit to fall 80% in the first half of this year, due to lower gross profit margins on some projects and reduced land development revenue. Its Hong Kong-listed shares fell more than 7% on Monday.
Shares and bonds of Longfour Group ( 0960.HK ) and Seizen Group ( 1030.HK ), the other two major private developers considered financially sound, have been under pressure since Country Garden’s debt problems came to light. On Monday they fell 1.7% and 5.7% respectively.
In an effort to boost market confidence, LongFore transferred 1.7 billion yuan worth of funds ahead of an onshore bond maturity date on Thursday, a source with direct knowledge said.
The Beijing-based developer recently paid off another HK$3.2 billion early on a HK$15.3 billion five-year syndicated loan due in January 2024, for a total of HK$7.2 billion early, the person said, adding that the firm plans to repay the remainder. By the end of this year.
Cailianshe and Debtwire were the first to report onshore and offshore repayments respectively. Longfor declined to comment.
Reporting by Claire Jim; Additional reporting by Yuhan Lin in Beijing; Edited by Jacqueline Wong and Sri Navaratnam
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