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The Liquidation Petition Of Country Garden Exacerbates China's Property Problems

The Liquidation Petition Of Country Garden Exacerbates China's Property Problems
Chinese property developer Country Garden announced on Wednesday that it has been the target of a liquidation petition for failing to repay a $205 million loan, casting doubt on its chances of a debt restructuring and jeopardising Beijing's attempts to bolster the real estate industry.
The petition was submitted by a creditor, Ever Credit Limited, a division of Kingboard Holdings, a company listed on the Hong Kong Stock Exchange, and Country Garden stated in a regulatory filing to the Hong Kong Stock Exchange that it would "resolutely" reject it.
A May 17 court date had been scheduled.
There were no comments on the issue from Kingboard.
Wednesday afternoon saw an 11% decrease in Country Garden's Hong Kong shares, while the benchmark Hang Seng Index saw a 1.3% fall. In the last 12 months, the stock has lost more than 70% of its value.
At a time when Beijing is attempting to restore confidence in the sector that accounts for a quarter of China's GDP, the petition is expected to rekindle fears among creditors and homebuyers regarding the debt problem facing the Chinese property market.
A liquidation of Country Garden could postpone the possibility of a revival of the Chinese economy as a whole as well as the real estate market. It would also put more pressure on the company's onshore lenders.
The case was filed one month after a Hong Kong court ordered China Evergrande Group, the most indebted real estate developer in the world with liabilities over $300 billion, to be liquidated.

Presently, Evergrande is dealing with a challenging restructuring process that some investors believe could take up to ten years to complete.
Standing as a foundation of the second-biggest economy in the world, China's property sector has been lurching from crisis to crisis since 2021, when a regulatory crackdown on debt-fueled building caused a liquidity pressure.
Since then, there has been a series of developer defaults on their repayment obligations; several of these have initiated or are in the process of initiating debt restructuring procedures in order to avoid being subject to bankruptcy or liquidation proceedings.
According to Nicholas Chen, an analyst with CreditSights, creditors are "applying pressure" on the delinquent developers to come up with credible restructuring plans or risk having their assets liquidated by filing liquidation applications.
"Having said that, even if (Country Garden) was liquidated, we doubt that offshore creditors would receive much recovery proceeds given the structural subordination of offshore bondholders and that most of the developer's assets are onshore."
January saw a further decline in the cost of new homes in China. Beijing's attempts to stimulate demand failed to reverse the countrywide decreasing trend, notwithstanding modest stability in its largest cities.

Debt-ridden developers have been delaying or suspending work on new housing projects, which has caused many prospective homeowners to postpone purchases.
The liquidation petition may cast doubt on Country Garden's debt restructuring efforts, which have gained impetus in recent weeks due to its $11 billion in offshore debt being considered to be in default. This might happen if it discourages other creditors from reaching a settlement.
In order to assess its capital structure and liquidity position and create what it termed a "holistic" solution, the developer has enlisted the advice of KPMG and the law firm Sidley Austin.
When Country Garden failed to pay back a $15 million bond coupon in October of last year, a collection of foreign creditors known as the "ad hoc bondholder group" was established. It's unclear if negotiations over restructuring have begun.
As of the end of June 2023, the developer's total liabilities were 1.36 trillion yuan ($188.9 billion), which is not far from its 1.43 trillion yuan total assets.
"Country Garden has taken way too long, messing around with switching advisers and wasting time, so it's no surprise people lose their patience and would rather liquidate them," a Country Garden dollar bond investor said.
Since they were not allowed to talk with the media, the investor's identity could not be ascertained.

In order to get terms announced to the market as quickly as possible, Country Garden stated in its filing that it will keep up "proactively communicating and working with its offshore creditors on its restructuring plan."
"The radical actions of a single creditor will not have a significant impact on our company's guaranteed delivery of buildings, normal operations and the overall restructuring of overseas debts," it stated in a statement.

When Ever Credit, an entity of investment holding company Kingboard, made a statutory demand for repayment in October, it became one of the first known corporations to begin legal action against Country Garden. Ever Credit owes HK$1.6 billion ($204.5 million).
Top management at Country Garden issued a warning earlier this year, predicting that the company would likely encounter more "severe" obstacles and that China's real estate market will remain dismal in 2024.

In an effort to earn money, Country Garden has also increased the sale of its properties abroad. Just this month, it sold a portion of its most recent Australian project and listed an East London residential development for sale.

Christopher J. Mitchell

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