Country Garden Races Against Time to Prevent Historic Dollar Bond Default

Country Garden Holdings Co. is on the brink of facing its inaugural dollar bond default, amplifying concerns surrounding China's ongoing property debt crisis. With a looming deadline for interest payment approaching, the distressed Chinese developer is racing against the clock to avoid this fiscal milestone.

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Country Garden Holdings Co. is on the brink of facing its inaugural dollar bond default, amplifying concerns surrounding China's ongoing property debt crisis. With a looming deadline for interest payment approaching, the distressed Chinese developer is racing against the clock to avoid this fiscal milestone.

This significant development marks the first major test for China's once-leading developer, who, just last week, issued a dire warning regarding its inability to meet its forthcoming offshore payment obligations. This warning is the most potent indicator yet of an impending debt crisis and subsequent restructuring. Country Garden's financial struggles in recent months, coupled with the deepening problems faced by its peer, China Evergrande Group, underscore the inadequacy of government rescue efforts in mitigating the escalating property crisis within the nation.

Country Garden had already missed the original deadline for the $15.4 million coupon on the note the previous month. The bond includes a 30-day grace period, which is set to expire on October 17-18, and it is only after this grace period that a default can officially be declared.

Despite its past financial hurdles, Country Garden had managed to sidestep a major public bond payment failure and had successfully restructured its local debt in recent months. In a stock exchange filing last week, the company acknowledged failing to make a due payment totaling HK$470 million ($60 million) "under certain of its indebtedness," though the specifics were left unspecified.

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It should come as no surprise if an eventual default occurs, as the developer's dollar bonds are currently trading at severely distressed levels, hovering around 4-6 cents on the dollar. This indicates investors' low expectations for debt recovery should the worst come to pass.

Country Garden, which reported total liabilities of $187 billion as of June 30, ranks among the world's most debt-laden builders. The company faces yet another critical deadline on October 27, when the grace period for a $40 million coupon on another dollar bond will expire.

The possibility of delinquencies or a tumultuous restructuring by Country Garden threatens to plunge China's housing sector into deeper chaos. This sector encompasses a multitude of projects that surpass those managed by Evergrande, whose default two years ago had reverberated across Chinese financial markets.