Country Garden Seizes Breathing Space

After two weeks of intense negotiations, Country Garden has made progress in extending its debt.

According to Wall Street News, on September 2nd, the extension plan for "16 Biyuan 05" by Country Garden received enough votes and was ultimately approved. The bond will be paid in installments over the next three years, providing Country Garden with more breathing room in terms of funding.

Documents show that the extension proposal received 56.08% of the votes, and the proposal to increase the grace period by 40 days received 50.66% of the votes, both passing by a narrow margin. This also indicates that there was intense back-and-forth between Country Garden and the bondholders during the extension process.

Previously, Country Garden had suspended trading on 11 domestic bonds, involving a total principal of 15.7 billion yuan, all of which will mature within the next year. "16 Biyuan 05" is the largest bond among them, with a remaining balance of 3.904 billion yuan, putting the most pressure on Country Garden internally. According to investor expectations, the extension plan for "16 Biyuan 05" is paving the way for the extension of other debts, and the extension plans for other debts will also take it as a reference.

The approval of "16 Biyuan 05" has laid a foundation for the subsequent extension of domestic debts by Country Garden.

The road to extending this bond has not been smooth, with bondholders and Country Garden engaging in intense negotiations for two weeks. As early as mid-August, bondholders received the extension plan for "16 Biyuan 05" from Country Garden and began discussing the specific extension matters. In order to increase the approval rate of the plan, Country Garden also updated some credit-enhancing assets and added a "small payment" plan in subsequent announcements.

However, some bondholders were dissatisfied with this plan, considering it longer than the one-year or even six-month extension plans of other companies. However, some institutional investors expressed that this plan demonstrates Country Garden's cautious approach, as it is better to extend the time all at once instead of potentially going through multiple extensions after the initial extension period.

Some institutional investors also expressed dissatisfaction with the down payment ratio and hoped that Yang Huiyan, the controlling shareholder of Country Garden, could provide personal guarantees. Some investors also hoped that Country Garden could make partial interest payments in advance.

This prolonged the negotiations between Country Garden and the bondholders for several days. The negotiations started from August 23rd to 25th, extended to August 25th to 31st, and ultimately added one more day, ending on September 1st at 10 p.m.

Some investors have also stated that they received the interest payment for this private bond on September 1st. In order to gain sufficient support, Country Garden made concessions as much as possible.

The final result is satisfactory, and the extension plan for this bond by Country Garden has been successfully approved.

However, Country Garden cannot relax just yet. Next week, Country Garden still has two US dollar bond interest payments totaling $22.5 million that have not been paid on time, and the 30-day grace period will also come to an end. Institutional insiders familiar with Country Garden believe that Country Garden is still working hard, and the ultimate outcome depends on whether they can make the payment by the deadline.

According to the interim report recently released by Country Garden, as of mid-2023, its total borrowing balance has decreased by 4.9% to 257.9 billion yuan compared to the end of last year, with a net debt ratio of 50.1%. Due to the continuous deterioration of sales and the weak refinancing environment this year, Country Garden's available funds have continued to decrease, with only 130.569 billion yuan on hand, a decrease of nearly 17 billion yuan from the end of 2022. However, the funds at Country Garden's disposal are barely enough to ensure the completion of construction projects. It still needs to accelerate property sales, sell assets to generate cash flow, and engage in further negotiations with creditors to buy time.

Country Garden has also stated that it will continue to actively adjust its sales and pre-sales activities in response to market changes and demand. It will also take measures to expedite the collection of sales proceeds and other receivables, and make efforts to revitalize underperforming assets, including hotels, office buildings, and commercial properties. When necessary, it will consider disposing of its investments in property development projects to generate more cash inflow.

With recent policy signals, including cities like Foshan announcing that they will only recognize the property but not the loan and requiring a minimum down payment of 20%, the market is gradually showing signs of warming up before the traditionally busy season in September and October.

In its interim report, Country Garden's management expressed confidence in the future prospects of the Chinese economy. They believe that after this round of profound adjustments, the real estate industry will eventually return to a stable and healthy development track, and Country Garden will spare no effort to turn the current situation around.