Quiver Quantitative - Chinese real estate giant Country Garden has defaulted on a dollar bond for the first time, further emphasizing its descent into financial trouble amidst a larger property debt crisis affecting China's robust economy. The developer failed to fulfill an interest payment on the bond within the stipulated grace period, leading trustee Citicorp International (C) to label it an "event of default." As a result, the principal and interest could be declared due instantly if at least 25% of note holders demand it. As of now, no such demand has been identified from creditors.
Country Garden, ranked among the world's most debt-laden developers, has a missed payment tally of $15.4 million for dollar bond interest following the expiration of a 30-day grace period. The default scenario had been anticipated since Country Garden openly acknowledged their inability to meet all offshore payment commitments promptly. Now, the company is on the precipice of one of China's most significant restructuring endeavors.
With Yang Huiyan, one of China's wealthiest women, at the helm, Country Garden plays a pivotal role in China's economy, given that the property sector and its related industries contribute approximately 20% of the GDP. This default transpires as China's President, Xi Jinping, amplifies growth support through initiatives such as increasing sovereign debt for infrastructure projects. Notably, Country Garden's stocks have plummeted by about 74% this year, and the company has recently sought advisors to assess its capital structure.
The default could have broad ramifications, especially for credit default swap purchasers. A conglomerate of banks and investment managers is set to deliberate if a failure-to-pay credit event took place, following a missed payment query tied to the developer. Moreover, this default intensifies the predicament for Country Garden's dollar bondholders, some of whom are considering organizing themselves to negotiate debt restructuring.
This article was originally published on Quiver Quantitative