Country Garden, a beleaguered Chinese real estate developer, narrowly averted its first default by successfully making multi-million-dollar interest payments on two outstanding loans, as reported on Tuesday.
In August, the company had announced its inability to meet payments totaling $22.5 million, prompting a 30-day grace period. The culmination of this grace period was set to occur either on Tuesday or Wednesday. However, according to sources cited by Bloomberg News, the company managed to fulfill its interest obligations.
Country Garden, declined to provide any statement regarding the repayment. Chinese media outlets also independently corroborated this development.
As one of China's largest construction firms, Country Garden had accrued substantial debts, estimated at 1.43 trillion yuan ($196 billion) by the conclusion of 2022. Recently, the company reported a staggering loss of 48.9 billion yuan for the initial six months of this year.
On a more hopeful note, the company reportedly secured consent from creditors on Saturday to extend a critical bond repayment deadline of 3.9 billion yuan. This extension provides Country Garden with much-needed breathing room to navigate its financial challenges.
The consequences of a potential default loomed large, with Country Garden poised to become the largest Chinese real estate firm to default since its counterpart, Evergrande, in 2021. However, the company's path remains fraught with obstacles, as additional loan repayments loom on the horizon.
The ongoing cash flow problems faced by Country Garden have stoked fears of a potential collapse, which could have severe repercussions for China's already fragile economy. The nation grapples with soaring youth unemployment rates, declining consumption, and a broader real estate sector crisis.
Moody's, the credit rating agency, compounded Country Garden's woes by downgrading its credit ratings by three notches, from Caa1 to Ca. This downgrade reflects obligations deemed "highly speculative" and at risk of default. Moody's cited the company's precarious liquidity situation, heightened default risk, and dim prospects for bondholders' recovery as the basis for their assessment.
Moreover, Moody's expressed doubts regarding Country Garden's ability to muster sufficient internal cash reserves to address forthcoming offshore bond maturities, further underscoring the gravity of the financial challenges facing the embattled developer.
