Country Garden's offshore debt in default risk without payment

If China's largest property developer, Country Garden, fails to make a $15 million coupon payment on Tuesday, October 17, 2023, marking the end of a 30-day grace period, its entire offshore debt will be considered in default. Failure to pay this tranche is expected to initiate cross-defaults in other bonds, as per the typical provisions found in bond contracts.

Country Garden stated last week that it is unable to meet its offshore debt obligations. This is the reason why an expectation of a lack of payment is expected from the holding company. This failure in payment would make the Chinese firm the newest member on the list of developers who have defaulted.

There are some more payment obligations that have been missed by Country Garden over the past few weeks. The 30-day grace period for these payments has not lapsed yet.

Country Garden's potential default, given its nearly $11 billion in offshore bonds and $6 billion in offshore loans, could pave the way for one of the largest corporate debt restructurings in China's history.

Country Garden has brought in Houlihan Lokey, China International Capital Corporation (CICC), and law firm Sidley Austin as advisers to analyze its revenue model and liquidity position to prepare an overall solution.

In the past week, Kingboard Holdings, a printed circuit board maker, made headlines as one of the earliest listed companies to pursue legal action against Country Garden. A subsidiary of Kingboard Holdings, owed HK$1.6 billion ($204 million), issued a statutory demand to seek repayment.

Up to this point, Chinese developers accounting for 40% of the country's home sales have experienced defaults on their debt obligations since 2021, as reported by JPMorgan.

According to CreditSights data, Chinese developers have defaulted on over $114.6 billion of the $175 billion in dollar bonds outstanding since 2021.

With an increasing number of developers opting for debt restructuring, it is anticipated that their offshore creditors will be presented with less favorable terms, primarily due to the deteriorating prospects in China's real estate sector.