Yet Another Chinese Real Estate Titan Confronts a Creditor Pushing for Dissolution

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Country Garden, once China’s real estate titan, faces dire straits as a creditor seeks to wind up its operations, marking yet another grim chapter in China’s ongoing housing crisis.

Hong Kong-based Ever Credit Ltd. has initiated legal proceedings in the city’s High Court to shutter Country Garden’s operations due to its failure to repay a substantial loan of $204 million plus interest. This move echoes the recent liquidation order against China Evergrande, highlighting the pervasive financial turmoil gripping the real estate sector.

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Country Garden, which surpassed Evergrande as China’s largest developer in 2021, vows to contest the winding-up petition vigorously. The first hearing is slated for May 17, underscoring the high-stakes battle ahead.

The onslaught of defaults by over 50 Chinese property developers since 2021 reflects a broader trend of financial instability. Despite making arrangements with domestic banks, these developers have balked at repaying overseas creditors, exacerbating the crisis.

While many developers are listed on the Hong Kong stock market or have borrowed there, creditors face formidable challenges in recouping loans. Chinese courts may not recognize liquidation orders from Hong Kong, complicating efforts to access assets in mainland China. Additionally, stringent capital controls hamper the repatriation of proceeds from asset sales.

According to Zerlina Zeng of CreditSights, the winding-up order is unlikely to enhance debt recovery rates, given these systemic hurdles.

Country Garden’s cash crunch last October signaled its inability to meet debt obligations amid dwindling property sales. Plummeting housing prices have deterred Chinese households from purchasing apartments from private developers like Country Garden, exacerbating the industry’s woes.

The collapse of the traditional model, where developers relied on presales to finance ongoing projects, has left millions of homes unfinished. Nomura Securities estimates that 20 million presold homes in China require $450 billion to complete, underscoring the magnitude of the crisis.

Country Garden’s presales dropped by a staggering 74 percent in the latter half of last year, reflecting the erosion of consumer confidence. Preliminary data from Lunar New Year festivities indicate a further 40 percent decline in sales compared to the previous year, signaling deepening troubles for the sector.

The contagion of real estate woes has now reached Hong Kong, prompting the city’s financial secretary, Paul Chan, to announce the repeal of measures aimed at curbing speculation in the property market. This policy reversal underscores the severity of the crisis and the urgent need for remedial action.