(News Bulletin 247) – The Chinese promoter Country Garden is currently in a tense financial situation, having not honored the payment of coupons on bonds last week. This raises the specter of broader difficulties in the real estate sector that would plague the Chinese economy as a whole.

The fears that had shaken the Chinese markets in 2021, with the risk of bankruptcy of the real estate developer Evergrande, are resurfacing.

Another Chinese developer has been worrying investors for several sessions now and finds itself in a precarious financial situation: Country Garden Holdings, which is heading towards default and collapses by 16.3% on the Hong Kong Stock Exchange. This obviously weighs on the course of the local place, the Hang Seng index of Hong Kong losing 1.9% around 9:20 am, while in mainland China, the Shanghai Composite lost 0.3%.

“Last week, the company failed to pay two dollar bond coupons at original maturity, reigniting fears of larger defaults in the country’s property sector, when there are no no sign of stronger support measures from Beijing,” observes John Plassard, investment adviser at Mirabaud. Country Garden has a 30-day grace period and risks default in September.

An Evergrande bis?

This Monday, the real estate developer, member of the Forbes ranking of the 500 largest companies in the world, this time suspended trading in 11 “offshore” bonds (to simplify, denominated in foreign currencies).

Beyond its difficulties on its debt securities, Country Garden Holdings had indicated last Thursday to expect to suffer a loss over the first six months of the year amounting to 55 billion yuan, or 7.6 billions of dollars. On the same day, the rating agency Moody’s downgraded the company’s credit rating from “B1” to “Caa1”, a rating subject to “very high credit risk”, according to the agency’s scale.

These financial difficulties are the consequence of the heavy debt of the Chinese group, which is crumbling under total liabilities of a total amount of 194 billion dollars at the end of 2022, according to Reuters. As Bloomberg points out, Country Garden was China’s leading real estate developer from 2017 to last year, before dropping to sixth place, weighed down in particular by its portfolio, with 60% of projects (according to AFP) located in small Chinese cities of small sizes, where real estate prices found themselves under more pressure than in large metropolises.

Remember that from 2020, the Chinese government has decided to clean up the massive indebtedness of the real estate sector by tightening access to credit for developers, which has complicated the refinancing of the big names in the sector, precipitating payment defaults. , especially at Evergrande. The financial difficulties of the latter group had raised the specter of a Chinese “Lehman Brothers” at the end of 2021.

“Country Garden is not the China Evergrande group. It is a much better managed company”, nevertheless judged this Monday, Shuli Ren, editorial writer at Bloomberg, who nevertheless judges that a financial restructuring with an unenviable treatment of creditors and very likely.