Chinese Property Developer Country Garden Faces Liquidation Petition Amidst Ongoing Real Estate Crisis
Chinese property developer Country Garden, which struggled with debt repayment last year, has received a liquidation petition from one of its creditors. Ever Credit Limited, a creditor that had extended a term loan facility worth 1.6 billion Hong Kong dollars ($204.5 million) to Country Garden, filed the petition at the High Court of Hong Kong on Tuesday.
The news came as a shock to investors, leading to a significant decline in Country Garden’s shares. The stock dropped by more than 12% following the announcement.
The Fall of Evergrande and Uncertainties
This recent development is particularly noteworthy as it comes just a month after the high-profile liquidation of rival property firm Evergrande. The embattled Evergrande, which was once China’s second largest homebuilder, had failed to reach an agreement with its overseas creditors regarding the restructuring of its massive debt during negotiations that lasted 19 months.
The liquidation order raised concerns about how the collapse of Evergrande, which was a symbol of China’s real estate crisis, would impact investors, thousands of workers, and homebuyers who were waiting for their apartments. The uncertainties surrounding the situation remain.
Country Garden’s Struggle with Debt Repayment
Last October, a global panel overseeing credit default swaps declared that Country Garden had defaulted on its debt due to missed payments on a $500 million bond. The developer had previously warned investors about the possibility of defaulting on offshore debt, following reports of a deepening sales plunge.
Country Garden, which was once China’s largest homebuilder, had missed the payment on its bond while grappling with a liquidity crisis. The company had battled to make the repayment following the government’s crackdown on developers’ borrowing, which triggered a liquidity crisis in the sector.
The Chinese Real Estate Market and Central Bank Intervention
China’s economy has faced challenges due to the real estate downturn that began in 2021. The government crackdown on developers’ borrowing led to a crisis in the sector, causing a prolonged decline in both investment and sales of property. To address the situation, China’s central bank cut its key mortgage reference rate by a record amount last week as part of efforts to stem the crisis.
Despite these measures, dozens of major developers have already defaulted on their debt, highlighting the severity and ongoing nature of the crisis.
Country Garden’s Response
In response to the liquidation petition, Country Garden said it would “vigorously” oppose the proceedings. The court hearing is scheduled for May 17.
Implications for Country Garden and the Real Estate Market
The implications of these developments on Country Garden, as well as the broader real estate market in China, remain uncertain. The future of thousands of workers and homebuyers in the sector hangs in the balance.
Conclusion
The liquidation petition against Country Garden serves as a reminder of the ongoing challenges in China’s real estate sector. With dozens of major developers already defaulting on their debt and the future uncertain, the impact on investors, workers, and homebuyers could be significant.
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