Country Garden Looks Set For Debt Restructuring After Admitting It Can’t Repay International Borrowings

China’s distressed property developer Country Garden said it’s unlikely that it will be able to repay all of its international debt as sales have continued to slide amid the country’s broader real estate crisis. The company is now working with advisors in what is likely to be preparations for an eventual debt restructuring.

The company has hired China International Capital Corporation and Houlihan Lokey as financial advisors to evaluate its liquidity and capital structure, according to a Tuesday filing to the Hong Kong Stock Exchange. The Foshan-based developer says in the filing that it can’t meet all of its offshore payment obligations when due or within their grace periods, which may lead creditors to pursue enforcement action.

“Under the circumstances where obtaining new financing was extremely difficult, the group strived to meet its repayment obligations with its sales revenue and internal cash resources,” the filing said. “Nevertheless, currently the group’s sales and financing are still facing significant challenges, and its available funds have continued to decrease.”

Country Garden has been calling for patience from creditors as it needs more time to work through the situation. Led by billionaire Yang Huiyan, who has a net worth of $4.1 billion, according to Forbes estimates, the company has been at the center of China’s property crisis this year. Once considered to be among the country’s healthiest property developers, Country Garden surprised many investors in August, when the firm missed $22.5 million in interest payments on two U.S. dollar bonds by an initial deadline.

Although the interest was eventually paid just prior to the end of a 30-day grace period, Country Garden still faces more payment deadlines this year. With almost $190 billion in total liabilities, the firm managed to gain some breathing room in September, when it won bondholder approval to stretch payments on 14.7 billion yuan ($2 billion) worth of onshore bonds for three years.

But Country Garden says in the aforementioned filing that it needs “extensive support” to sustain its long-term development. With no improvement in industry-wide property sales despite a raft of recent government support measures, the company saw its contracted sales for the first nine months of 2023 decline almost 45% to $21.7 billion from a year ago, according to the filing. It was hit particularly hard because almost two-thirds of the firm’s residential projects are located in lower tier cities, where property prices are more susceptible to the prolonged industry downturn.