By Jiahui Huang
Country Garden said a state guarantor could come to its aid after the troubled developer missed deadlines for bond payments, presenting a key test for a government entity in dealing with an ongoing debt crisis in China's property sector.
Heavily indebted Country Garden said Thursday that it couldn't pay interest on two government-guaranteed bonds due on May 9, but that it would try to make the payments -- which total the equivalent of about $9.1 million -- by Monday, within the grace period.
If it can't, then state-owned China Bond Insurance, guarantor of the bonds, will "fulfill its credit-enhancement responsibilities," the company said.
Country Garden cited "continuous volatility of the industry" and a weaker-than-expected recovery in sales for making it hard to allocate funds toward interest payments.
The missed payments offer a test for China Bond Insurance, a state-owned entity that some market watchers have hoped would step in to aid developers struggling with a liquidity crunch.
"This is the first time that bonds backed by China Bond Insurance face potential default, so there is no precedence," Morningstar analyst Jeff Zhang said.
He added that China Bond Insurance's credit-enhancement responsibilities likely mainly pertain to adding collateral such as landbank and properties, or introducing another third-party to provide joint guarantees, rather than directly helping Country Garden repay its interest.
Country Garden, once one of China's largest property developers, has been among a host of titans pushed to the brink by a multiyear downturn in the country's sprawling real estate industry.
The Foshan-based company had more than $15 billion of international bonds and loans outstanding at the end of June 2023, according to its public disclosures. It defaulted on a dollar bond last October, and missed a local bond payment in March.
Trading in shares of Country Garden was halted in late March in Hong Kong, where the company is awaiting a hearing on a liquidation petition.
Write to Jiahui Huang at jiahui.huang@wsj.com
(END) Dow Jones Newswires
05-09-24 0434ET
