Property sector shares gain as NBS allays Country Garden fears

The real estate sector led as the top gainer on Wednesday despite an overall decline in China's A-shares, after the National Bureau of Statistics (NBS) on Tuesday responded to concerns about Country Garden's financial crisis.

The recent real estate issue involving Chinese property giant Country Garden Holdings Co Ltd has sparked concerns about its potential impact on the industry's recovery but the NBS has assured the public that the difficulties are deemed temporary.

At a press conference held by the State Council Information Office on Tuesday, Fu Linghui, spokesperson for the NBS, acknowledged that the overall real estate market is currently in an adjustment phase, and the difficulties faced by some companies, particularly those with exposed debt risks, have affected market expectations.

However, he emphasized that as the market adjustment gradually takes effect and real estate market policies are optimized, the risks faced by these firms are expected to gradually fade.

Fu further highlighted the support and commitment of first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen in meeting the demand for affordable and improved housing. These cities have been firm in their determination to ensure that housing remains accessible to residents. Additionally, several second- and third-tier cities have implemented new property control policies, which are expected to boost market confidence.

Market response

Shares of Country Garden listed on the Hong Kong Stock Exchange rebounded by 1.25 percent on Tuesday, recovering some ground after the stock plunged over 18 percent a day earlier as the company sought to delay payment on a private onshore bond for the first time. The shares further picked up 2.47 percent on Wednesday to close at HK$0.83 (11 US cents).

In terms of the Chinese mainland's A-shares, meanwhile, despite a decline in the overall market, the real estate sector emerged as the top performer on Wednesday, gaining 1.67 percent and reversing the declines of the previous three trading days.

The incident involving Country Garden unfolded on the evening of August 10 when the company issued a profit warning announcement. It stated that it is expected to incur a net loss of between 45 billion yuan (US$6.17 billion) and 55 billion yuan in the first half of this year.

The company also issued an apology letter on August 11, acknowledging that it is facing the biggest challenge since its establishment. It cited the continuous deterioration of sales and refinancing environment as the main factors of a decline in available funds, resulting in temporary liquidity pressure.

As a result of the liquidity pressure, Country Garden announced on August 12 that it would suspend trading of multiple domestic company bonds under its umbrella from August 14, with the resumption of trading to be determined separately.

Country Garden is reported to have begun negotiations with holders of its "16 BiYuan 05" bond for an extension plan, which would be the first bond that the company has sought an extension for since revealing its financial pressure.

The "16 BiYuan 05" bond is a private placement bond issued by Country Garden Real Estate Group Co Ltd that is set to mature on September 2, with a remaining balance of 3.904 billion yuan.

The proposed plan from Country Garden is to extend the maturity of the debt while paying interest, with the principal to be extended for three years. During the first three months after maturity, 2 percent of the principal will be paid each month. In the 12th month, 10 percent of the principal will be paid, followed by 15 percent in the 24th month, 25 percent in the 30th month, and the remaining 44 percent in the 36th month.

Holders of the bond revealed that Country Garden is also providing enhanced credit measures by pledging the equity of project companies in Longyan City of Fujian Province, Yantai City in Shandong Province, and Jiangsu Province's Shuyang, Huai'an and Xinghua, as reported by The Paper.

According to information released on Country Garden's official website, the company had initially projected the delivery of nearly 700,000 homes in 2022 and 278,000 homes in the first half of 2023, including from its joint ventures and affiliated companies. The total delivery for the full year of 2023 was expected to be close to 700,000 homes.

As China's largest private real estate developer, Country Garden ranked 206th in the Fortune Global 500 list for 2023, with an operating revenue of approximately US$63.98 billion in 2022.