China's Property Giant Country Garden Launches Overseas Debt Restructuring Amidst Crisis
The
Epoch Times
By
Jessica Mao
10/19/2023
Updated:10/19/2023
Since
falling into a debt crisis, giant Chinese private property developer Country
Garden announced on Oct. 10 that it has HK$470 million (about US$60 million)
due and is expected to be unable to fulfill repayment of all foreign debts even
in the grace period.
According
to the announcement, Country Garden has hired high-profile law firm Sidley
Austin LLP
to assess the company's capital structure and liquidity position to formulate
an overall solution.
The
move means that Country Garden's overseas debt restructuring work has been
officially launched. The company said that it hopes to fully resolve its
current offshore debt crisis.
There
are 15 public U.S. dollar-denominated bonds of Country Garden with a total
principal amount of approximately US$9.3 billion at maturity. Among them, there
are two bonds due in 2024, which are US$965 million and US$537 million. This
year, Country Garden is struggling with the interest payment of the U.S. dollar
bonds, which does not yet involve the maturity of the principal amount.
Country
Garden said its sales have been under significant pressure in 2023, with equity
sales amounting to approximately 154.98 billion yuan (US$21.2 billion) from
January to September 2023, a year-on-year decrease of 43.9 percent. This is due
to China’s current real estate decline.
Country
Garden has been relying on grace periods to avoid a debt default. On Sept. 5,
the company completed the interest payment on two overseas bonds totaling
US$22.5 million. These two interest payments were supposed to be made on Aug. 7
but were not paid as scheduled. Both bond interest payments had a 30-day grace
period, preventing a material default.
In
August, Country Garden admitted publicly for the first time that the company
has encountered the greatest crisis since its founding.
According
to the company’s profit warning, the first half of this year's net loss will be
between 45 billion and 55 billion yuan (US$6.16-7.52 billion), while the same
period last year's net profit was still 1.91 billion yuan (US$260 million).
Postponing
Debt Repayment Dates
The
U.S.-based political and economic analyst Lu Yuanxing said in an interview with
The Epoch Times on Oct. 13 that Country Garden's foreign and domestic debts
could not be repaid, and it is only relying on rolling over their debt, which
was recently approved for three years, to postpone the inevitable.
As
of Sept. 30, Country Garden has
delivered about 420,000 new homes in China, and about
280,000 units are still yet to be delivered.
Mr.
Lu pointed out that the delivery of properties also requires sufficient
capital. “There are a lot of projects under construction by Country Garden. It
costs a lot of money to complete these projects," he said. "So, does
Country Garden have sufficient capital to ensure its completion? It appears to
be quite difficult now."
Mr.
Lu said if Country Garden fails to deliver its properties, China would face a
huge problem as home buyers have already paid down payments and applied for
mortgages. People would be paying their mortgages without owning a home,
leading to significant social unrest. Home buyers in many parts of the country
have protested to defend their rights, but almost all of them have been
violently suppressed by the Chinese authorities.
In
addition, sales will still be a problem even if Country Garden completes all
its projects on time. "Properties cannot be sold to realize the capital.
Even though Country Garden extended its debt this time, in the next year and
the year after that, there will still be maturing debt. It is simply not
feasible to just rely on debt extensions."
Crisis
Likely to Impact Banking Sector
As
China's top real estate company, the market impact of Country Garden's debt
crisis will be significant and will likely impact the country’s banking sector.
Mr.
Lu said that almost all real estate companies in China achieved rapid expansion
by borrowing from banks, but a large portion of this capital has gone into the
pockets of individuals due to corruption.
"For
example, in the loan process, real estate companies, government officials, and
banks usually collude with each other through bribes and various special
interests. So a lot of money has been in the pockets of elite executives in
China,” Mr. Lu said.
He
also said that some of the practices of Country Garden in the early stage
showed that it was conducting a transfer of funds.
“Country
Garden Board Chairman Yang Huiyan made a large donation to some overseas
charitable trust foundations. In reality, they were transferring capital
overseas, and it will eventually end up in their own pockets,” he claimed.
Wider
Economic Impacts
Davy
Jun Huang, a U.S.-based economist, told The Epoch Times on Oct. 13 that the
impact of Country Garden's debt differs from that of Evergrande, the other
Chinese real estate giant in deep financial trouble.
Mr.
Huang said that Country Garden has always been regarded as a role model in
Chinese real estate and has always maintained a positive image. The company has
more projects all over China than Evergrande. This means that it will have a
much wider impact on China if the company is in financial turmoil.
He
said that the financial woes of Country Garden and Evergrande, combined with
the current downward trend of China's economy and the strained relations
between the United States, China, and the European Union, will lead investors
to actively adjust their investment ratio in emerging markets in China.
Along
with the rising risks of emerging markets, investment funds may reduce the
proportion of investment in the Chinese market. As a result, they will reduce
their exposure to China in the future, which will have a negative impact on the
enthusiasm and scale of investment in the Chinese market.
"In
terms of public opinion, Evergrande has received much more attention than
Country Garden, but the impact of Country Garden and Evergrande is
different," Mr. Huang said.
"In
terms of public opinion and among general home buyers and investors, Evergrande
will have a greater impact because it is such a massive corporation. Country
Garden, on the other hand, will have a greater negative impact on professional
investors and investment funds."
Xin
Ning contributed to this report
Connecting
the Dots:
Sidley Austin LLP is the high-profile
law firm hired by Country Garden.
Michelle Obama was
a lawyer at Sidley Austin LLP.
Barack Obama was
an intern at Sidley Austin LLP, and is the president for the Barack
Obama administration.
Cameron F. Kerry is a
senior counsel at Sidley Austin LLP, John F. Kerry’s brother,
a fellow at the Brookings Institution (think tank).
Foundation to Promote Open Society was a funder for
the Brookings Institution (think tank) and the Carnegie
Endowment for International Peace (think tank).
George Soros was the chairman for the Foundation
to Promote Open Society.
Jon M. Huntsman
Jr. is a trustee at the Carnegie Endowment for International
Peace (think tank), and an ambassador to China for
the Barack Obama administration.
J. Stapleton Roy is
a trustee at the Carnegie Endowment for International Peace (think
tank) and was a U.S. ambassador for China.
Andrew Carnegie was
the founder of the Carnegie Endowment for International Peace (think
tank), the endowed predecessor schools for the Carnegie Mellon
University and the founder of the Carnegie Museums of Pittsburgh.
Teresa Heinz
Kerry is an emeritus life trustee at the Carnegie Mellon
University, a trustee emeritus at the Carnegie Museums of
Pittsburgh, married to John F. Kerry and an honorary trustee at
the Brookings Institution (think tank).
John F. Kerry is
married to Teresa Heinz Kerry, Cameron F. Kerry’s brother
and was a secretary at the U.S. Department of State for
the Barack Obama administration.
Cameron F. Kerry is John
F. Kerry’s brother, a senior counsel for Sidley Austin LLP
and a fellow at the Brookings Institution (think tank).
Sidley Austin
LLP is the high-profile law firm hired by Country Garden.
Barack Obama was
an intern at Sidley Austin LLP.
Michelle Obama was
a lawyer at Sidley Austin LLP.
Foundation to Promote Open Society was a funder for
the Brookings Institution (think tank).
George Soros was the chairman
for the Foundation to Promote Open Society.
Resources:
Past Research
This
is the Real Attack on Israel, Soros Networking With All His Pawns! (Past Research on Sidley Austin LLP)
THURSDAY,
MAY 13, 2021
https://thesteadydrip.blogspot.com/2021/05/this-is-real-attack-on-israel-soros.html
Chinese
Crash Crushes Stock Market as Obama Imitates Chinese Economy (Past Research on China)
MONDAY,
AUGUST 24, 2015
https://thesteadydrip.blogspot.com/2015/08/chinese-crash-crushes-stock-market-as.html
Heroin
(Epidemic) (Past Research on Teresa Heinz Kerry)
SUNDAY,
JUNE 18, 2017
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