Introduction

The embattled Chinese homebuilder Country Garden has reported a staggering loss of $7.1 billion in the first six months of this year. This adds to the mounting pressure on China’s largest property developer as it teeters on the verge of financial collapse.

The Real Estate Crisis in China

• Years of excessive borrowing have left many of China’s biggest developers drowning in debt they struggle to repay.
• China’s slowing economy has further worsened the already sluggish real estate market, pushing Country Garden, with $187 billion in total debt, to the brink.

Country Garden’s Losses

Country Garden’s net loss for the first half of the year amounted to 51.5 billion yuan, compared to a profit of 1.9 billion yuan during the same period last year. The company had already warned of a significant loss due to the “unprecedented difficult period” faced by China’s property industry.

The company acknowledged that it discounted properties to maintain sales volumes and ensure a smooth business operation, resulting in increased revenue. However, contracted sales in July fell by 60% compared to the previous year.

Country Garden’s Statement

Country Garden expressed surprise at the depth and persistence of the market’s downtrend. The company admitted to investing disproportionately in properties in smaller cities, where the downturn has been more severe. It described the current situation as the most severe difficulty it has faced since its establishment.

Raising Funds

Country Garden announced plans to raise $34 million by issuing new shares. The company intends to issue 350.6 million shares at 77 Hong Kong cents apiece next week. The proceeds will be used to repay a subsidiary of Hong Kong-based Kingboard Holdings Limited, to which Country Garden owes around $200 million.

The new shares represent approximately 1.3% of the company’s existing shares and are being sold at a 15% discount to Tuesday’s closing price. Country Garden’s stock has plummeted by 67% this year.

Country Garden’s Struggles

Last week, Country Garden reached an agreement to sell a 27% stake in a property development in Guangzhou for $177 million. Once hailed as a fortunate survivor in China’s troubled property sector, Country Garden had managed to avoid the liquidity crisis that affected many developers after the government imposed borrowing limits in 2020.

However, the tables have turned, and Country Garden is now fighting to prevent collapse. The company has missed two interest payments to international bondholders and must repay them by next week to avoid default. It is also negotiating with creditors to delay the repayment of a $350 million domestic bond due later this week until 2026.