Country Garden survives one debt deadline. The next is just days away

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Hong Kong CNN

Investors in the Chinese property giant Country Garden breathed a collective sigh Monday after it won approval from its local creditors to defer repayments on an maturing bond. This avoided a possible default, at least for a couple of days.

The firm secured its first debt extension since its liquidity crisis was made public last month. This is a temporary respite for China's property industry, which had been shaken by the fear that Country Garden’s debt woes could spread to other firms and have a ripple effect on the economy.

CNN's request for comment has not been answered by the company.

The company is still liable. The company failed to pay interest on two dollar bonds due last month, and the grace period of 30 days on these missed payments expires next week. Failure to pay these creditors could still result in a default.

Country Garden's Hong Kong stock rose 15% on Monday following reports that the bondholders agreed to extend payment of a bond worth 3.9 billion Yuan ($540m) sold to Chinese investors that matured on Saturday. The stock has seen its biggest gain in nine month, but is still down 62% so far this year.

Hong Kong's Hang Seng Index (HSI), led by a surge of the property sector, grew 2.5%. It was its best day for more than a week. The shares also got a boost after a new set of stimulus measures was announced on Thursday in order to boost the real estate market. Hong Kong's stocks were closed on Friday due to a typhoon.

According to an agreement reached with its creditors and reported on by several state-owned media outlets Saturday, Country Garden can now extend the payment of the $540 million principal due until 2026. The bond's interest must still be paid according to the original schedule.

According to a document seen by CNN, the bond was issued on September 16, with an amount of $5.83 billion yuan (about $800 million), and a coupon of 5.65%.

According to the state-owned Southern Media Group, more than 56% (including major state-owned bank and private equity funds) of bondholders voted for the agreement.

Analysts from Huatai Securities said in a research note published on Sunday that the deal would'mean nearly 70% of Country Garden's bond principal payment could be deferred to three years after it is due, which will reduce pressure and improve Country Garden's long-term ability to service its debt'.

They added that this bond was the one with the highest outstanding balance of all the onshore debt the company needs to pay in the next year.

Yeap Jun Rong is a market analyst for IG. He said that past lessons learned from the default in 2021 of China Evergrande suggest any extension may only be a 'near-term respite', with investors still facing a headwind' due to the lack of a resolution of its debt woes.

Country Garden, China's biggest residential developer based on sales last year is struggling with a cash shortage.

It reported last week a record $7 billion loss for the first half of the year. The reason given was a persistent downturn in the real estate market, and the difficult refinancing climate. It confirmed it missed payments last month to holders of some offshore bonds and that the firm could default if its financial condition continues to worsen.

The company faces increasing pressure to repay its debts, as it has liabilities totaling nearly $200 billion.

According to Moody's, the company has around 31 billion yuan (4.3 billion dollars) of bonds that will mature by 2024.