The crisis engulfing China’s property sector – which has prompted Beijing to capitulate on its tightening ambitions yet again, and forced China to launch an increasingly more aggressive easing campaign, which so far culminated in the first rate cut in Chinese official rates in almost two years – has impacted the country’s biggest developer, sending the shares and bonds of Country Garden Holdings – which is even bigger than Evergrande – plunging amid fears that a reportedly failed fundraising effort may be a harbinger of waning confidence.
Country Garden is one of the few remaining large, (arguably) better-quality private developers that had been largely unscathed by the liquidity crunch, even as peers such as Shimao Group Holdings – a recently investment grade developer whose collapse in December was viewed as “more devastating than debt crises at Evergrande and Kaisa” – dramatic reversals in their credit ratings.
At least until now… and now that Shimao has imploded, Country Garden remains perhaps the final and most visible bellwether for contagion risk, as unprecedented levels of stress in the offshore credit market threaten to drag good credits down with bad.
Since taking the top spot from China Evergrande Group in 2017, Country Garden has remained the nation’s largest developer in China by contracted sales. It employs more than 200,000 people.
Headquartered in the southern city of Foshan in Guangdong province, the firm – like China Evergrande Group – has focused in recent years on building housing developments in lower-tier cities.
And, like Evergrande, Country Garden has also relied heavily on access to funding in the offshore credit market; actually not just Evegrande but virtually all developer peers that binged on debt to fuel growth in the past decade only to see the window slam shut now. According to Bloomberg, it has the largest pool of outstanding US dollar bonds among China’s biggest property firms, excluding defaulters, with some US$11.7 billion outstanding, Bloomberg-compiled data showed.
Founding chairman Yeung Kwok Keung transferred his controlling stake to his daughter Yang Huiyan in 2005. She is now the firm’s vice-chairman and is the richest woman in China, according to the Bloomberg Billionaire Index.
Or at least she was, because on some of Country Garden’s US dollar notes plunged to record lows in the wake of a report that the firm failed to win sufficient investor support for a possible convertible bond deal. Longer-dated bonds were trading as low as 69 cents on the dollar as of late Friday.