Country Garden’s failure to pay interest on the note within a grace period that ended last week “constitutes an event of default,” according to a notice to holders from trustee Citicorp International Ltd. seen by Bloomberg News. That means that the trustee must declare principal and interest due immediately if holders of at least 25% in aggregate principal amount of the notes outstanding demand it. There is no indication that creditors have made any such demand yet.
The builder, among the world’s most indebted developers, didn’t pay $15.4 million of dollar bond interest by the end of a 30-day grace period after missing the initial deadline of Sept. 17. A default had appeared all but official after Country Garden told Bloomberg News last week that it didn’t expect to be able to meet all offshore payment obligations on time. The company is now likely headed for what would be one of the nation’s biggest-ever restructurings. A spokesperson for Citigroup declined to comment about the trustee notice to Country Garden bondholders. Country Garden didn’t immediately offer a comment when reached Wednesday.
Helmed by one of China’s richest women, Yang Huiyan, the builder’s sheer size has made it important to the nation’s economy, where the property market along with related industries accounts for about 20% of gross domestic product.
The default comes just as Chinese President Xi Jinping steps up support for the economy, issuing additional sovereign debt, raising the budget deficit ratio and even making an unprecedented visit to the central bank.
The company was the country’s largest builder by sales for several years before plunging to seventh so far in 2023. Despite that decline, it still recently had more than 3,000 housing projects in smaller cities and about 70,000 employees. For that reason, turmoil could lead to a worse impact than from the debt failure in 2021 at distressed peer Evergrande Group given it has several times the number of projects.
