Beware, Chinese real estate giant wants to go bankrupt

Jakarta, Klinik Farma – China is again faced with the insolvency case of the real estate giant. After Evergrande, the same fate awaits one of the largest non-BUMN developers, Country Garden, in terms of sales.

On August 1, the company reportedly missed two coupon payments on dollar bonds totaling $22.5 million (Rs. 342 billion). These are bonds maturing in February 2026 and August 2030.

“Improving capital arrangements to secure legal rights to debt,” the company, which has total liabilities of $194 billion by the end of 2022 and assets in low-end Chinese cities, said in a statement.

“Useful cash has declined, indicating intermittent liquidity pressure due to the downturn in the selling and refinancing environment, as well as the impact of various fund rules,” the quote says. Reuters quoted Country Garden statement, Wednesday (8/16/2023).

“The company held on tight, but it was hard to see the dawn… unprecedented hardships,” he added.

As a result, shares of Country Garden, listed in Hong Kong, collapsed earlier in the week. Negative sentiment has also been seen in a number of other non-BUMN developer stocks such as Longfor.

Over the past few years, Chinese authorities have sought to curb debt-based speculation in the country’s real estate market. In 2020, Beijing will struggle with the high dependence of developers on debt for growth.

The bankruptcy of real estate giant Evergrande at the end of 2021 came as an early blow. The company was unable to pay debts amounting to about US$300 billion.

Earlier last week, Moody’s downgraded the company’s rating to B1. Moody’s highlighted limited access to funding and significant debt maturing within the next 12-18 months.

Free autumn housing prices

Meanwhile, new home prices in China fell for the first time this year in July. The 0.2% month-on-month decline came after June numbers were flat, down 0.1% from a year earlier, Reuters calculated based on data from the National Bureau of Statistics.

This is happening against the backdrop of a worsening debt crisis for large developers, declining real estate investment and home sales. Most analysts expect further declines in home prices and sales in the coming months, which will create problems for policy makers as many sectors of the economy face mounting pressure amid weak demand.

“Among 70 cities in 49 cities, new home prices fell in July compared to 38 cities in the previous month,” Reuters reported.

Last month, Chinese leaders at a politburo meeting promised to adjust their property policy. Housing regulators are also making efforts to shore up the sector, for example by lowering mortgage rates and down payment rates for first-time homebuyers, and easing mortgage restrictions for people looking to upgrade their homes.

Several cities, including Zhengzhou, have eased some property restrictions to bolster sentiment. Provincial capitals such as Xi’an and Fuzhou are considering lowering the down payment rate for residents who buy a second apartment.

Forecast Default JPMorgan

Meanwhile, JPMorgan raised its default estimate corporate highly profitable a growing market, which could be the default of Country Garden. As of August 15, the potential will increase from 9.7% to 6%.

He also raised his forecast for Asia to 10% from 4.1%. But this figure will only hover around 1% if Chinese real estate is excluded.

“Chinese real estate is expected to account for almost 40% of all default volumes by 2023, followed by 35% of Russian companies and 12% of Brazilian publishers,” the media reported.

[Gambas:Video CNBC]