The logo of Chinese developer Country Garden, in Tianjin, China, on Aug. 18, 2023.Tingshu Wang/Reuters
Country Garden has told some of its offshore creditors it plans to present a debt restructuring proposal in the second half of this year, two sources said, as the embattled developer scrambles to stave off a liquidation petition.
China’s biggest private developer defaulted on its $11-billion worth of offshore bonds late last year and is facing a liquidation petition in Hong Kong for non-payment of a $205-million loan. The first court hearing has been set for May 17.
A growing list of Chinese developers has defaulted on their repayment obligations since the sector slipped into an unprecedented debt crisis in mid-2021, and a handful have been ordered to be liquidated by courts so far.
China Evergrande Group was ordered to be liquidated in late January by a Hong Kong court after it failed to offer a concrete restructuring plan to creditors more than two years after defaulting on its offshore debt.
If Country Garden is able to present a debt restructuring proposal to its offshore creditors and get their approval for implementing it, it would help the developer push back against the liquidation petition.
A liquidation order against Country Garden would worsen the outlook for China’s property sector, which has lurched from one crisis to another over the last couple of years after a regulatory crackdown on high leverage among developers.
Country Garden aimed to present a preliminary restructuring proposal to an ad hoc group of bondholders as early as June for negotiation, and publish it to the wider list of creditors in the third quarter, one of the people said.
The company is conducting due diligence on its business health, which is required for working on any restructuring proposal.
Country Garden’s creditors, including a bank lender group, are now reviewing data and information provided to them, but formal negotiations on restructuring terms have not started, said the sources and two separate sources, who declined to be named because the conversations were private.
Country Garden did not comment on the proposal timeline, but said it was working with the creditor groups and their advisers in a fair manner. Together with the key bondholder and lender groups, it hoped to finish due diligence as soon as possible and then start discussion on restructuring terms.
The liquidation petition against Country Garden ramps up pressure on the developer to come to the negotiating table for debt restructuring talks, some its offshore creditors, advisers, and analysts have said.
In liquidation lawsuits involving defaulted companies, a company needs to convince the court that it was making progress on a debt restructuring plan which would be supported by and acceptable to most of its creditors.
In previous cases in Hong Kong, the court has made a number of adjournments on hearing before a decision was made.
Country Garden has hired Kroll to carry out a liquidation analysis for the liquidation suit, Reuters reported last month, to assess potential recovery rates for creditors that they can present in court.
Its shares in Hong Kong have been suspended since April 2, pending the publication of the 2023 results. The firm delayed results last month saying it needed to collect more information to make appropriate accounting estimates and judgments.
Country Garden said this week that it had won bondholders’ approval to further delay payments on three onshore bonds to September, in order to give it more time to raise funds.