Stock market earthquake in the Chinese brick after the default of one of its largest promoters

Another earthquake for the already battered Chinese real estate market, which has barely recovered from the blow of the giant Evergrande’s crisis, almost two years ago. Country Garden, the largest promoter in the Asian country by number of sales, has acknowledged this Tuesday that it has not been able to pay the interest on two debt issues and that it is experiencing “liquidity pressures” due to a “deterioration in sales and the economic environment of refinancing”. The announcement has triggered alarms in the sector, which has sunk on the stock market.

The Hong Kong reference index, the Hang Seng, closed this Tuesday with a decline of 1.8%, affected by the red numbers of Country Garden, which has sunk 14.39%. Its service affiliate has done so by almost 10%. The black day on the stock market has resulted in a mouthful of 5,000 million dollars in the value of the company. All the big promoters have closed the day in the red, weighed down by the fear of investors of a new liquidity crisis in the Chinese brick. Real estate values, such as Kaisa Group (11.15%), Mingfa Group (-10.38%) or Times China (-9.52%) have been several of the most affected.

According to Bloomberg, the company had to pay, at the latest on Sunday, 10.5 million dollars in interest on a bond issued in dollars and maturing in 2026, as well as 12 million on another debt issue that matures in 2030. Both have a grace period of 30 days. If the payment occurs in that time, it would prevent the company from being declared in default or suspension of payments. IFR announced at the beginning of the month that the company had canceled the placement of 300 million dollars in shares, further fueling doubts about its liquidity.

Evergrande

The bankruptcy of Country Garden would be a severe blow to a Chinese brick, which has not raised its head since the collapse of Evergrande: in September 2021, the world’s most indebted developer was also unable to pay its own international bonds, unleashing a stock market and confidence crisis in the sector, and sounding the alarms of a housing bubble. The group, which is no longer listed on the stock market, is immersed in an opaque restructuring process and announced last month the overdue accounts of its last two years, with losses of more than 72,000 million.

Country Garden was one of the survivors of that crisis, which left the Chinese real estate sector battered, responsible for approximately a quarter of the country’s economic activity. Evergrande was followed by other companies in the sector, leaving a good number of Chinese home buyers in the lurch, and further aggravating the liquidity crisis of the Chinese brick. In fact, last year there were protests —rare in the Asian country— because the construction companies did not finish and deliver homes to their buyers.

The company’s sales, which at the end of 2022 had a liability of 194,000 million, are being considered disappointing by analysts: in July, they were less than half that of the same month last year, and barely a quarter of those that made in July 2021. Its shares have sunk more than 25% this month and nearly 60% so far this year. According to Reuters, contracted sales in the first half have fallen by 30%. According to data compiled by Bloomberg, the promoter will have to face debt payments for more than 2,000 million dollars in the remainder of the year.

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