by Clare Jim

HONG KONG (Reuters) – China’s biggest property developer warned on Wednesday it could find itself in default if its financial situation continues to deteriorate after a record first-half loss, for which it said it was “deeply remorseful”.

Country Garden reported a net loss of 48.9 billion yuan (6.15 billion euros) in the first six months of the year, a result which reflects a worsening of the deterioration of its accounts after a loss of 6.7 billion yuan in the second half of 2022 and a profit of 612 million in the previous half.

The alert comes as Chinese authorities move to support a struggling real estate sector, which accounts for around a quarter of the country’s economy. The sector’s difficulties raise fears of a complete destabilization of the world’s second largest economy, already weakened by rising unemployment and sluggish demand.

Bankruptcies have multiplied since the end of 2021 in the real estate sector in China, where unfinished construction sites abound and suppliers as well as creditors are faced with unpaid bills.

Country Garden’s cash crunch came to light this month when the group defaulted on interest payments on two dollar-denominated loans, which it first confirmed on Wednesday, and he sought to extend the repayment of a private “onshore” loan.

“If the group’s financial performance continues to deteriorate in the future, the group may not be able to honor its financial commitments under these borrowings, which could lead to a default on these borrowings and cross defaults on certain other loans,” the promoter said in a financial document, adding that he would consider various ways to avoid such defaults.

Country Garden said its revenue rose 40% year on year in the first half but its business costs jumped 73%, with total debt unchanged from the end of 2022 at 1.4 trillion yuan.

“The company feels deeply remorseful for this unsatisfactory performance,” he said.

(Written by Clare Jim, Bertrand Boucey, edited by Jean Terzian)

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