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Shares in Country Garden slumped to a record low on Monday after the Chinese property developer suspended trading in at least 10 of its mainland bonds.
The company, formerly the largest developer in China by sales, missed international bond payments last week in a sign that a two-year liquidity crisis across the real estate sector was threatening to escalate.
Shares in the group fell as much as 15 per cent in Hong Kong following a statement released over the weekend that said several bonds issued by the company and its subsidiaries would be suspended from trading this week. A Hong Kong index tracking the mainland property sector dropped 5 per cent.
One of the Shanghai-listed bonds in question matures next month and was last trading at 27 cents on the dollar, compared with close to par in January this year when China lifted Covid-19 restrictions and investors were optimistic about a strong recovery in the world’s second-largest economy. The bond was trading at 50 cents a few weeks ago.
Until recently Country Garden was seen as a safer prospect than many of its highly leveraged peers. Its battle to survive is a crucial test of the health of China’s property sector, and Beijing’s policies towards it, as homebuyer confidence dips.
“Two weeks ago, the government insisted that it was going to support the property sector and that simply isn’t happening,” said Dickie Wong, head of research at Hong Kong-based Kingston Securities. “The next 30 days are going to be really critical for Country Garden.”
The Chinese government has so far stopped short of bailing out any of the country’s developers, dozens of which have defaulted since the failure of Evergrande in 2021, and focused instead on the completion of residential properties.
Beijing launched a deleveraging campaign in 2020 which was designed to cool overheating house prices but limited access to credit at private homebuilders, who typically sell residential apartments before they are completed and rely on the rapid circulation of cash.
Evergrande, the world’s most indebted developer, last month disclosed losses of $81bn over 2021 and 2022, revealing the scale of the debt crisis at the company, which is going through an opaque restructuring process.
Country Garden on Friday said it would “spare no effort in self-rescue” as it disclosed expected losses of Rmb45bn-55bn ($6.2bn-$7.6bn) for the first half of the year. From January to July, its sales were Rmb140.8bn, down 61 per cent compared with the same period in 2021 before a sector-wide cash crunch took hold.
China’s wider CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 1.3 per cent in early trading on Monday.
“You can see the shares tumbling and all they can do at the moment is stop trading to try and stabilise sentiment,” said Wong.
Additional reporting by Wang Xueqiao in Shanghai
