Country Garden Holdings Co.’s stock and bonds plunged, with short-sellers swarming over China’s sixth-largest developer by sales, as scrutiny intensified over its operations and ability to meet debt payments.
(Bloomberg) — Country Garden Holdings Co.’s stock and bonds plunged, with short-sellers swarming over China’s sixth-largest developer by sales, as scrutiny intensified over its operations and ability to meet debt payments.
Short interest as a percentage of outstanding stock jumped to a record above 8%, making the builder and its property management arm the most-shorted members of the Hang Seng Index. Reuters reported that Country Garden said it missed coupon payments on two dollar bonds due Aug. 6, without saying how the company communicated the information.
Concerns about the builder’s liquidity increased after it scrapped a share-sale plan last week, while firms from Moody’s Corp. to JPMorgan Chase & Co. have downgraded its bonds and stocks. Contracted sales slid 60% year-on-year to 12 billion yuan ($1.7 billion) last month, and analysts say the company’s relatively high exposure to lower-tier Chinese cities leaves it vulnerable to weaker home sales.
“It seems like more investors are betting on Country Garden’s liquidity concerns leading to its failure,” said Patrick Wong, a Bloomberg Intelligence analyst. The firm “has a sizable amount of projects, so any default will significantly affect the overall property market sentiment and hit other developers.”
The shares fell as much as 12% on Tuesday to HK$1.16, dropping a fourth straight day and leading a selloff in Chinese developer shares. Its dollar bonds also slid, with a note due in January 2024 slipping below 20 cents, set for the lowest since November.
Country Garden said in a statement that its cash available for usage has continuously decreased, showing “periodic liquidity stress” due to a deterioration in sales and the refinancing environment, and various fund regulations.
The company said it’s actively improving capital arrangements to ensure the legal rights of creditors. It didn’t respond to questions on whether it had made coupon payments.
The two dollar coupons were effectively due Monday as the original date fell on a Sunday. Both notes have a 30-grace period until any missed payment can constitute a default, according to the bonds’ prospectus.
“The risk of a default is higher if they need to use the grace period,” said Daniel Fan, an analyst at Bloomberg Intelligence. Country Garden is very tight in cash, he said. “This would be a major test for the sector. Contagion is unavoidable.”
A Bloomberg gauge of Chinese developers declined 4%.
Read More: Country Garden’s $9 Billion Hole: BI APAC Equity
One of Country Garden’s units wired cash to cover early repayment of a yuan bond, according to people familiar with the matter on Monday. All of the note’s holders chose to exercise the put option, and the issuer needs to remit 838 million yuan to repay the principal and interest.
Shares of the Foshan-based builder have slumped more than 50% this year, as investors become increasingly doubtful whether it can hold out as a rare survivor of the wave of defaults that has engulfed the sector since early 2021. The builder earlier said it expects to swing back to a net loss for the first half of this year.
There are signs policymakers intend to move quicker to help developers. The People’s Bank of China said last week that it would increase funding support for the private sector after meeting with executives from the property industry. Three Chinese companies are planning to sell as much as 2.2 billion yuan ($305 million) of state-guaranteed local bonds, according to people with knowledge of the plans.
–With assistance from Alice Huang, Jackie Cai and Emma Dong.
(Updates with latest stock and bond moves.)
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