Workers pass by a construction site in Kunming, China, where Country Garden, a major property developer, is building residential buildings. The stock and bond prices of China’s real estate industry hit their lowest levels in eight months on Monday due to concerns about the financial stability of two of the country’s largest developers. This has further eroded confidence in the sector, which used to contribute a significant portion of China’s GDP but is now facing significant challenges. Country Garden shares fell 6% to their lowest level in eight months, while shares in its services arm dropped 16%. Country Garden’s dollar bonds also fell below one-fifth of their face value. Shares of competitor Longfor declined 10%, and an asset sale by Dalian Wanda failed to boost bond prices as investors awaited confirmation that the funds would reach bondholders. The founder of credit analysis firm Ratingdog, Yao Yu, expressed skepticism about real estate developers’ ability to repay bonds through their own operations due to weakening market sales and inadequate policy support. The Chinese government’s crackdown on debt and a decline in public confidence have resulted in a halt in property development, leaving builders struggling to sell apartments or refinance their debts. Late-night guidelines promoting urban redevelopment were seen as insufficient, leaving investors hoping for more concrete measures from an upcoming Politburo meeting. The struggles faced by well-known companies in the industry demonstrate the severity of the challenges. On Monday, an index of mainland developers fell 5.5% and was on track for the worst session of the year. A Hong Kong debt fund manager expressed concern about the declining value of Country Garden bonds, as it is a major player in the market. Country Garden, with its thousands of projects across nearly 300 Chinese cities, surprised and worried investors with its move to refinance a loan facility from 2019. The company has experienced ratings downgrades and new defaults in recent times. The drop in value of Country Garden’s onshore-traded bonds, which fell below half of their face value, and its dollar bonds due in 2025 and 2031, which dropped below 20 cents on the dollar, only added to the pressure. China’s largest commercial developer, Dalian Wanda, also faced cash flow issues, particularly for one of its subsidiaries which needed to make a coupon payment by the end of a grace period on July 30. To address this, the company sold part of another subsidiary to streaming firm China Ruyi for $320 million, with the intention of repaying a separate $400 million bond. Other prominent developers, such as Greenland Holdings and Sino-Ocean Group, have also experienced repayment difficulties and missed deadlines. These recent challenges have undermined the nascent recovery the real estate sector was experiencing after the easing of COVID-19 restrictions. Evergrande, a prominent company in the sector that faced significant funding stress in 2021, is still undergoing restructuring, and property sales are slowing down once again. Fitch Ratings suggests that bond restructurings may provide some relief to distressed Chinese property developers, but sustained recovery in home sales will be necessary to overcome their repayment difficulties.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
