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Debt crisis spreads to China’s largest property developer

Country Garden Holdings, China’s top developer by sales in 2021, has finally felt the impacts of the debt crisis in the country’s real estate market.

According to Bloomberg, some Country Garden dollar bonds hit record lows after a report of the failed debt deal. Longer-dated bonds were trading as low as 69 cents late Friday, Jan. 14.

Country Garden Holdings on Wednesday failed to refinance a $300 million convertible bond. As a result, its dollar bond due in 2031 fell 2.7 cents on the dollar to 72, on pace for a record low.

The company’s debt on bonds it has to pay this year is $1.3 billion; most are dollar notes. Its next maturity is a $425 million bond due on Jan. 27.

According to Bloomberg Intelligence analyst Kristy Hung, the builder with decreasing market sentiment may have difficulty reviving sales in 2022 because more than 60% of Country Garden’s sales and 77% of its land bank came from China’s third and fourth-tier cities. And it has just continued to buy land in the same areas. As a result, cash collection has become even more of a worry.

In addition, Country Garden’s financial health has enormous economic and social ramifications, endangering China’s economy and social stability.

If the company shows signs of stress, it will wreak havoc on already shaky investor and homebuyer confidence because it is building 3,000 housing projects spread over practically every region in China.

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