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A creditor wants another massive Chinese real estate company to be demolished. A creditor wants another massive Chinese real estate company to be demolished.
By Keith Bradsher
Reporting from Beijing
In the most recent indication that China's housing crisis is still ongoing, Country Garden, the country's biggest real estate developer as of 2022, announced on Wednesday that a creditor had requested a Hong Kong court to liquidate its business and repay lenders.
A lender from Hong Kong named Ever Credit Ltd. is requesting that Country Garden be closed before the city's High Court. The real estate developer alerted the Hong Kong stock market that Country Garden was in default on a $204 million loan plus interest that was due to Ever Credit. This is the subject of the court complaint.
The purpose of Ever Credit's winding up petition is to compel Country Garden to shut down and sell its properties in order to raise funds for its creditors. The action is in response to a High Court ruling from last month mandating China Evergrande's liquidation. Following Evergrande's financial collapse in 2021, Country Garden emerged as China's leading developer.
The first hearing on the court petition has been set for May 17, and Country Garden declared that it would fight it "vigorously."
Since 2021, around fifty Chinese real estate developers have fallen behind on their payments. They have made plans with Chinese banks for potential future payments, but they have refused to pay their creditors abroad.
Many of these developers have borrowed money or had shares listed on the Hong Kong stock exchange, or both. However, Zerlina Zeng, the head of East Asia corporate credits at Credit Sights, a worldwide credit research business, said that creditors encounter significant challenges when attempting to recoup debts from Chinese real estate developers through court cases in Hong Kong.
The majority of Chinese developers' assets are located in mainland China, where courts might not accept Hong Kong-issued liquidation orders. Liquidation auctions of developers' buildings may be ordered by mainland courts, but creditors may find it difficult to obtain the proceeds of such sales due to China's increasingly stringent restrictions on transferring funds outside of the country.
The winding up order, according to Ms. Zeng, "would not manage to improve the recovery rate" for debt payback.
In October of last year, Country Garden practically ran out of money to pay off bills. As housing prices have fallen precipitously over the past two years, Chinese households have drastically reduced their purchases of units from private-sector developers such as Country Garden.
Developers have been unable to complete the building of millions of flats that they had presold to buyers throughout China because they lack the funds from ongoing sales. Last month, Nomura Securities of Japan calculated that 20 million pre-sold homes in China were still unfinished and would cost $450 billion to complete.
For many years, China's real estate developers relied on selling apartments before they were constructed and then utilizing the proceeds to complete additional units that they had previously promised to other purchasers. However, as homeowners have shied away from working with private-sector developers that are struggling to close deals, that financial model has collapsed.
In comparison to the same period in 2022, Country Garden's unfinished apartment presales fell by 74% in the second half of last year. Additionally, preliminary data indicates that sales during Lunar New Year earlier this month fell by 40% less than they did during the same holiday last year, adding to the problems plaguing China's real estate business overall.
Mainland Hong Kong has also been affected by the current real estate problems that China is experiencing. In his annual budget speech on Wednesday, the city's financial secretary, Paul Chan, announced that he would be lifting restrictions that had been put in place to stop speculation on properties in Hong Kong.
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