Country Garden: A Step Closer to Debt Restructuring Deal

Country Garden, one of China's largest property developers, is inching closer to a deal with its creditors, with expectations set for a final agreement by the end of February. The company, which has been grappling with financial difficulties, is seeking to restructure its offshore debt as part of its efforts to stabilize its operations and navigate the ongoing property sector crisis in China.

Country Garden's proposed debt restructuring plan, submitted to major creditor groups, includes a targeted debt reduction of up to $11.6 billion. This would enable the firm to achieve "significant deleveraging," according to a filing on Thursday. The proposal also includes a debt maturity extension of up to 11.5 years and a reduction in funding costs, with a targeted decrease in the weighted average borrowing cost to about 2% a year from 6%. Additionally, the controlling shareholder of Country Garden is considering converting its existing loan to the group, which has an outstanding principal of $1.1 billion, into shares of the firm or its subsidiaries.

The company's cash flow projection has evolved over time, with a downward revision in the latest proposal compared to earlier estimates shared with some offshore creditors. This revision comes after the government rolled out a raft of measures to revive the property sector, which has slumped in recent years as developers succumbed to a mountain of debt. Despite these efforts, China's new home prices fell the most year-on-year in October since 2015, and property investment declined 10.3% in the first 10 months of 2024, suggesting that the support measures have had little impact so far.

If Country Garden can gain support from its key creditors for the restructuring proposal before the January court hearing, it would pave the way for the company to seek more time from the court to implement a restructuring plan. This would allow Country Garden to avoid liquidation and potentially emerge from the crisis with a more sustainable financial structure.

However, the company's shares have been suspended from trading since April 2024, pending the release of 2023 full-year and 2024 interim results. The company's contracted sales for October 2024 fell 31% to around 4.33 billion yuan ($598 million), further highlighting the challenges it faces in the current market conditions.

In conclusion, Country Garden's proposed debt restructuring plan, if successfully implemented, would significantly improve the company's financial health and operations by reducing its debt burden, lowering its interest expenses, extending its debt maturity, and strengthening its balance sheet. This would enable the company to better navigate the ongoing property sector crisis in China and position itself for future growth. However, the company must continue to work with creditors and other stakeholders to find a sustainable path forward and address the challenges it faces in the current market conditions.