UPDATE 1-China’s Country Garden close to potential default on offshore debt

HONG KONG, Oct 18 (Reuters) – Country Garden Holdings, China’s largest private property developer, is facing potential default on its $11 billion overseas debt as it has yet to make a coupon payment. This situation adds to the growing crisis in the property sector, which accounts for a quarter of the world’s second-largest economy.

If Country Garden fails to make the payment, it will join numerous other Chinese developers who have already defaulted, further exacerbating the situation. There is a lot at stake as the company could be considered in default if it does not make a $15 million payment for a September 2025 bond by midnight in New York (0400 GMT).

According to a source familiar with the situation, the repayment has not been made as of early Wednesday. Last week, the company issued a warning regarding its inability to meet offshore debt obligations. Country Garden has chosen not to comment at this time.

With $11 billion of offshore bonds and $6 billion of onshore loans, a default by Country Garden would trigger one of China’s largest corporate debt restructurings. The company has already missed other offshore payments in recent weeks, although these payments still have some time left within their 30-day grace periods.

Fortunately, Country Garden is in a better position regarding its onshore debt, as it has been granted extensions for repayment. Last month, the company received approval from creditors to extend repayment on an onshore bond, which was the last of eight bonds seeking extensions. Each of these eight bonds, totaling 10.8 billion yuan ($1.48 billion), has been extended for an additional three years.

A recent CreditSights report indicates that state-linked developers in China still have access to funding markets, while private firms are struggling to secure new capital. The report suggests that privately-run developers who have not yet defaulted may face significant challenges due to insufficient contracted sales and limited access to funding.

Should a default occur, Country Garden’s offshore creditors would commence negotiations with the firm’s financial advisors. Given the magnitude of the debt, the restructuring process could potentially take many months. The bleak outlook of China’s property market is likely to worsen the terms that offshore creditors have to accept during the debt restructuring.

New data reveals a 9.1% decline in property investment in China for the first nine months of the year, along with a 7.5% drop in sales by floor area. Further property market data, including nationwide prices of new homes for September, will be released on Thursday.

According to JPMorgan, developers responsible for 40% of Chinese home sales have already defaulted on their debt obligations since 2021. These companies, predominantly private, have issued approximately $110 billion worth of high-yield offshore bonds. Hong Kong’s Hang Seng Mainland Properties Index has fallen by 40% this year.

($1 = 7.3110 Chinese yuan) (Reporting by Scott Murdoch in Sydney; Editing by Sonali Paul and Edwina Gibbs)