China developer Country Garden flags likely default

The news: Embattled Chinese property developer Country Garden has warned about its inability to meet offshore debt obligations, raising the prospects for a default and what is likely to be one of the country's biggest debt restructurings.

The numbers: The company was due on Monday to pay USD66.8 million in coupons on 2024 and 2026 dollar bonds, although the payments have a 30-day grace period. The developer said in a filing to the Hong Kong Stock Exchange on Tuesday it did not make a principal payment of USD60.04 million on certain debts, without providing further details. Country Garden’s entire offshore debt could be deemed in default next week if it fails to pay a USD15 million September coupon by 17 October, at the end of the 30-day grace period. Its shares slid more than 10% on Tuesday and have lost nearly 70% of their value since the start of the year.

The context: Country Garden said on Tuesday its sales and financing were facing "significant challenges", and available funds have continued to decrease. It would "not be able to meet all of its offshore payment obligations when due or within the relevant grace periods", and added that non-payment may lead to creditors demanding payment acceleration or pursuing enforcement action. The company, China's largest private property developer, has USD10.96 billion of offshore bonds and USD5.86 billion worth of offshore loans. Companies accounting for 40% of Chinese home sales — mostly private property developers — have defaulted on debt obligations since a liquidity crisis hit the sector in 2021, leaving many homes unfinished.