KEY MONTH for COUNTRY GARDEN

Author | Cao Anxun

Editor | Zhou Zhiyu

China's largest private real estate developer, Country Garden, has once again reached a crossroads in its fate.

On August 8th, Country Garden failed to pay the interest on two US dollar bonds, totaling approximately $22.5 million, which was due on August 7th. Country Garden stated that there is a 30-day grace period for interest payment, and the company is currently actively optimizing its fund arrangement to protect the legitimate rights and interests of bondholders.

This means that Country Garden has not actually defaulted, and there is still a chance to maintain its creditworthiness in the next month.

After weathering a short attack last year and successfully maintaining its creditworthiness, this leading private real estate developer is facing the most critical month.

Internal sources at Country Garden expressed optimism about the market rebound in August to Wall Street News, and the company will take more actions in the next month to safeguard its safety bottom line.

Current Situation

The problems currently faced by Country Garden are strongly influenced by the industry.

After a small rebound at the beginning of the year, real estate sales continued to weaken, experiencing a second bottom in July. After a two-month freeze, financing for private real estate developers showed signs of thawing, but the number of supported developers and the amount of financing remained limited.

Data from CRIC shows that July was the coldest month in the real estate market in recent years, with both private real estate developers and state-owned enterprises experiencing a significant decline in sales. According to CRIC's monitoring, the transaction area of new homes in 30 key cities in July was 11.04 million square meters, reaching a five-year low, with a month-on-month decrease of 33% and a year-on-year decrease of 37%. Since the surge in March, it has experienced four consecutive declines.

The continued decline in sales and the bleak refinancing environment, as well as the impact of fund supervision, have put pressure on the liquidity of most real estate developers, including Country Garden.

According to Country Garden's financial report, as of the end of last year, its available cash was 147.55 billion yuan, with pre-sale regulatory funds at the level of 60 billion yuan. By continuously maintaining its creditworthiness and paying off bonds on time or even in advance, Country Garden's available funds have continued to decrease.

The decline in sales performance over the past two months has exacerbated this situation. In July of this year, Country Garden's equity sales amounted to approximately 12.07 billion yuan, a year-on-year decrease of 59.92%. However, with equity sales of 138.75 billion yuan, it ranked fifth among real estate developers.

Insiders familiar with Country Garden's investment and financing activities stated that under these circumstances, Country Garden has been trying to expand its financing channels.

With institutional support, Country Garden obtained a dual-currency term loan financing of HK$3.583 billion and US$389 million on July 20th for refinancing.

Subsequently, Country Garden included rights issue financing in its plan. On August 1st, some institutions received the issuance documents from Country Garden, stating that Country Garden plans to issue 1.8 billion shares for approximately HK$2.34 billion. However, COUNTRY GARDEN subsequently announced that it has not yet signed a final agreement on the rights issue and is not considering a rights issue in the near future.

A source close to COUNTRY GARDEN said that the company did consider a rights issue and consulted multiple institutions. However, the parties did not reach a consensus on the timing of the rights issue, and the plan has been temporarily shelved.

COUNTRY GARDEN has also been working hard to maintain its credibility. First, on July 27, it remitted funds in advance to repay the RMB 2.2 billion "19 Bi Di 02" bond, which was due on August 1. Then, on August 7, COUNTRY GARDEN made an early redemption of the outstanding principal and interest of the "20 Bi Di 02" bond, which was originally due on August 10.

As a result, many investors still have confidence in COUNTRY GARDEN despite the downturn in the industry. In recent times, there have been continuous rumors about COUNTRY GARDEN in the market, and COUNTRY GARDEN has promptly refuted and explained these rumors to minimize their impact. However, in the end, COUNTRY GARDEN still faced temporary liquidity pressure.

Turning Point

Even state-owned enterprises and central enterprises, such as China Overseas Land & Investment Ltd. and China Resources Land Ltd., have experienced a downturn in the past two months after the optimism at the beginning of the year. The depth and intensity of this market adjustment have exceeded the expectations of many real estate giants.

COUNTRY GARDEN is still committed to solving problems. At an internal meeting in early July, COUNTRY GARDEN's management emphasized the importance of perseverance, focusing on ensuring the safety of the company and continuing to make every effort to complete the "delivery of buildings" political task, and staying true to the company's mission in the industry's major test.

Maintaining corporate credibility is essential to ensuring company safety.

Some industry experts also believe that investors' attitudes towards debt extensions are no longer as rigid as before. They are willing to support real estate companies that have managed to survive by providing favorable extension conditions. From the perspective of the company, COUNTRY GARDEN has done well.

Bai Wenxi, Chief Economist of IPG China, believes that COUNTRY GARDEN's asset and financial conditions are better than many other real estate companies, giving it the opportunity to turn things around.

Recently, there have been significant positive developments in real estate policies. After the Ministry of Housing and Urban-Rural Development made a statement, relevant departments in Beijing, Shanghai, Guangzhou, and Shenzhen, the four first-tier cities, have expressed their support for residents' housing needs. Zhengzhou also launched the "Recognize Housing, Not Recognize Loans" policy and suspended the restriction on property sales on August 3, followed by other cities such as Nanjing.

After a cold July, the market is gradually warming up. According to data from institutions including CRIC Research Center, last week (July 31 to August 6), the real estate markets in key monitored cities were in a low consolidation phase. After the release of the "stabilizing the real estate market" policy, both new and second-hand housing transactions have seen a boost in cities such as Zhengzhou and Nanjing. Among them, both Nanjing and Changsha saw a MoM increase of over 40% in new home prices.

Moreover, with the arrival of the "Golden September and Silver October" season, Wall Street News has learned from multiple real estate companies that their sales plans for the next few months are more active than the first half of the year. With both supply and demand sides showing signs of improvement, the real estate market is expected to gradually recover, boosting market confidence.

Zhu Jin, a real estate analyst at CITIC Securities, believes that with the continuous implementation of policies, the sales and financing conditions in July should be considered the bottom of this year, and subsequent improvements will follow.

Ding Zuyu, CEO of E-House China, predicts that loose real estate support policies are being prepared for release. More core cities in the first and second tiers will join the ranks of relaxation and adjustment, becoming the main force in the relaxation measures. The expected increase in supply in August will drive a rebound in transactions.

Wang Shi, the founder of Vanke Group, also sees the hardships and perseverance of private enterprises. He recently stated that China's real estate market is currently in an adjustment period and will face many challenges, including liquidity issues. However, China has a huge market, and with the introduction of relevant policies, it is believed that these challenges can be overcome.

In the next month, market confidence, increased support on the financing side, and other external conditions will determine whether Country Garden, the leading private real estate company that has survived the market adjustment of the past two years, can once again create a miracle.

Some investors have expressed that if Country Garden can overcome this difficult period, it will undoubtedly greatly boost confidence for the company and the market. And confidence is also the key to leading real estate companies out of the slump and stabilizing and revitalizing the overall economic environment.