China’s Country Garden faces payment deadline after twice dodging default

Embattled Chinese property developer Country Garden faces yet another liquidity test with a deadline to pay $15m in interest linked to an offshore bond after having dodged default at the last minute twice this month.

The country’s top private developer, whose financial woes have worsened the property sector outlook and prompted Beijing to unveil a raft of support measures, will have a 30-day grace period after Monday’s deadline to pay the coupon before it would be considered in default.

If Country Garden fails to pay the $15m before the grace period ends in mid-October, the principal will become due immediately and any failure to service the bond will trigger cross-default terms on other credit, said Sandra Chow, co-head of Asia-Pacific research at CreditSights.

“It’s going to be really hard” for Country Garden to meet its debt obligations due to its tumbling cash levels at a time when property sales in the world’s second-largest economy remain very weak, Chow said.

A Country Garden spokesperson did not immediately respond to a request for comment from the Reuters news agency on Monday about its latest debt repayment obligation.

Country Garden last month warned of default risks if its financial performance continues to deteriorate. It has 108.7 billion yuan ($14.9bn) of debt due within 12 months but cash of about 101 billion yuan ($13.9bn) as of June.

It avoided default by winning approval from its creditors to extend payments for an onshore private bond in a major relief for the embattled Chinese developer as well as the crisis-hit property sector.

The developer in August missed coupon payments worth $22.5m tied to two dollar bonds but managed to wire funds before a grace period ended this month, dodging a default.

Last week, onshore bondholders agreed to extend repayments of seven other Country Garden bonds by three years.

Shares in Country Garden, one of the few large Chinese developers that have not defaulted on its debt obligations, were trading nearly 1 percent higher on Monday in Hong Kong.

Many creditors believe Country Garden will have to restructure its offshore debt if it doesn’t get liquidity support soon.

Some offshore creditors of Country Garden have started talks with the New York-based law firm Kobre & Kim LLP and London-based Ashurst and are looking at forming groups if the property developer seeks to restructure its debt.