Country Garden posts $7bn loss as China’s property crisis deepens

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Country Garden, as soon as China’s largest personal property developer by gross sales, has revealed a file Rmb48.9bn ($6.7bn) loss for the primary half of the yr as it battles to outlive the liquidity crisis afflicting the nation’s actual property sector.

The six-month outcomes launched on Wednesday signify the very best ever losses for the group, till lately thought of safer than lots of its friends. They additionally spotlight the dire outlook for an trade sometimes chargeable for greater than 1 / 4 of financial exercise in China.

The firm’s woes are a part of a two-year actual property liquidity crisis that started with the default of developer China Evergrande in 2021 and has proven indicators of spilling over into the Chinese funding trade.

As the broader crisis has continued, Country Garden’s losses have grown from Rmb6.7bn for the second half of 2022. By distinction with this week’s outcomes, it had recorded a revenue of Rmb612mn for the primary six months of final yr.

The Guangdong-based group mentioned its revenues within the first half of this yr elevated 39 per cent to Rmb226bn.

But it added that it had “struck a balance between sales volume and selling price at some of its property projects” to “ensure punctual delivery of finished properties” — an obvious acknowledgment that it had minimize costs to shift models.

Concerns over Country Garden’s funds grew this month when it missed coupon funds on worldwide bonds. On Tuesday, the developer requested Chinese collectors for a 40-day grace interval on a renminbi bond maturing subsequent week.

Country Garden mentioned it had liabilities of about Rmb1.36tn as of the tip of the primary half of 2023. It mentioned it will “consider adopting various debt management measures to resolve” what it described as “phased liquidity pressure”.

Beijing cracked down on borrowing by China’s builders early within the coronavirus pandemic, however has been compelled to ease its method as the nation struggles to reinvigorate its financial system.

In a transfer that mirrored the stress on authorities, the southern cities of Guangzhou and Shenzhen relaxed mortgage lending circumstances for first-home consumers on Wednesday.

Caps on financial institution mortgage lending had been initially a part of a wider method designed to deal with overheating residence costs. A chronic slowdown has since hit housing costs amid collapsing gross sales and delays to building of latest flats.

The authorities has stopped wanting any bailouts, however its method in direction of Country Garden is being carefully watched.

Chinese builders face a $38bn wall of renminbi and greenback bond funds due over the subsequent 4 months, in response to information from Dealogic.

“Developer defaults will certainly continue as almost all private developers face cash flow pressure that isn’t going away any time soon,” mentioned Bruce Pang, chief economist for Greater China at JLL. “Any policy support that does come will take time to feed through to cash flow, home sales and new construction starts.”

Country Garden had deliberate to boost $300mn from a share supply in late July, however abruptly cancelled the deal on the final minute.

The developer additionally introduced plans on Wednesday to situation HK$270mn ($34mn) of latest shares in Hong Kong at a 15 per cent low cost to its closing value on Tuesday, with all cash raised to be earmarked for reimbursement of current loans.

Shares in Country Garden rose 5.7 per cent on Thursday morning in Hong Kong following the corporate’s first-half outcomes. The inventory is down two-thirds within the yr to this point, reflecting a loss of greater than $7bn in market capitalisation.

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