Country Garden Holdings, the Chinese property developer at risk of defaulting, is planning to issue HK$270 million ($34.4 million) of new shares to pay off loans as it faces a cash crunch.
The Foshan-based company will issue about 350.6 million shares at HK$0.77 each, according to a statement to the Hong Kong stock exchange.
Country Garden won’t receive any cash from the proceeds, it said. The stock will be used to set off money it owes to a subsidiary of Kingboard Holdings, a Hong Kong-based manufacturer.
Once China’s largest developer by sales, Country Garden’s latest effort to pay off its borrowings through share sales underscores the stress the company is facing. Its debt crisis threatens to be worse than when peer China Evergrande Group defaulted as it has four times as many property projects.
The move signals “very tough liquidity” for Country Garden, said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities.
Country Garden has missed interest payments on some dollar bonds and warned of “major uncertainties” about note redemptions. The company is expecting a first-half loss of as much as $7.6 billion, it warned ahead of earnings that are scheduled to be announced on Wednesday.
The shares will be used to offset HK$318.8 million that Country Garden owes to Kingboard as part of a loan facility arranged in December 2021.
The company faces a series of key dates in coming weeks. Holders of a yuan bond are scheduled to vote this week on its plan to extend payment of a bond effectively due September 4. Country Garden has proposed a grace period of 40 calendar days, as the developer seeks to avert its first default.
The developer also faces the end of grace periods to pay a combined $22.5 million of dollar-note coupons in early September.
The share issuance “will likely do little to ease its cash crunch,” said Bloomberg Intelligence analyst Kristy Hung. “Its liquidity is still set for a downward spiral as buyers and lenders avoid this name due to weak confidence in its ability to complete projects.”
China’s property slump has been worsening anew, with new home sales falling the most in a year in July. The central government last week unveiled a further easing of its mortgage policies to halt the housing slowdown.
The country’s largest banks are preparing to cut interest rates on existing mortgages and deposits to shore up growth, people familiar with the matter said on Tuesday.
© 2023 Bloomberg
