Country Garden faces vote to delay payments; China deploys more support

The embattled Chinese promoter Country Garden It faced a key test of investor confidence on Thursday as its creditors were due to vote on whether to delay payments on an onshore private bond, while Beijing rolled out more support measures for the real estate.

The vote on the 3.9 billion yuan ($535.4 million) private bond is a key hurdle that Country Garden it will have to overcome in its efforts to avoid default amid a spiraling financial crisis and opposition from some creditors.

Voting was to conclude at 10 p.m. (1400 GMT) Hong Kong time. Voting will take place through private meetings and it is unclear how quickly the results will be made available to bondholders.

Country Garden is the largest private developer of China. The company’s mounting woes are the latest to hit the property sector and have sparked fears of contagion to the financial system at a time when the country is already struggling with a broader economic slowdown.

The real estate sector, which accounts for about a quarter of the economy and is grappling with a debt crisis that has rattled global markets, has entered a downward spiral since 2021 after Beijing cracked down on debt buildup. by the promoters.

“A Chinese slowdown is priced in on world markets, but a real downturn in the world’s second-biggest economy is not ideal for anyone.“, said Matthew Pestronkpresident and co-founder of Post Brothersa Philadelphia-based real estate development company.

As concerns grow that the crisis will increasingly hit the country’s economy, weighing on consumer confidence and spooking investors, the Chinese government has rolled out a series of support measures in recent days.

In the latest move, the People’s Bank of China, the country’s central bank, announced on Thursday it was cutting interest rates on existing mortgages for first-time home buyers, as well as the down payment in some cities.

Although it did not specify the amount of the cuts, the central bank said the down payment ratio for first home purchases should not be less than 20%, and not less than 30% for second home purchases. Currently, most large cities require down payments of 30% and 40% or more, respectively.

Separately, two other big cities declared they would allow citizens to access preferential loans for the purchase of their first home regardless of their credit history, after Guangzhou and Shenzhen adopted similar measures on Wednesday.

Goldman Sachs said in a note that it sees “many possibilities” that other big cities follow their example of facilitating mortgages. If the measure is applied generally in large cities, “could give a modest growth boost to the real estate market”, although the magnitude is likely to be moderate, the note noted.

Further compounding the real estate sector’s woes, Moody’s on Thursday downgraded the credit rating of Country Garden in three steps, from Caa1 to Caa1, given the concern that the company could be on the brink of default.

“The rating downgrades with a negative outlook reflect the poor liquidity of Country Garden and the increased risk of default, as well as the recovery prospects of the company’s bondholders”, stated the senior vice president of Moody’s, Kaven Tsang.

Source: Reuters