Chinese Country Garden issues shares worth $34 million to repay debts

The Chinese company Country Garden, which is at risk of default, plans to issue new shares worth 270 million Hong Kong dollars (34.4 million US dollars) to repay loans as it faces a cash crisis.

The Foshan-based company will issue about 350.6 million shares at a price of 0.77 Hong Kong dollars per share, according to a statement of the Hong Kong Stock Exchange as reported by “Bloomberg”.
“Country Garden will not receive any cash from the proceeds,” she said. The share sales will be used to clear funds owed to a subsidiary of “Kingboard Holdings”, a Hong Kong-based manufacturing company.
Having been the largest developer in China in terms of sales, the recent efforts of the company “Country Garden” to repay its loans through share sales confirm the pressure that the company is facing. Its debt crisis threatens to be even worse than when the Chinese “evergrand ” Group defaulted, since it has 4 times as many real estate projects.

Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities, said that this move indicates a very difficult liquidity crisis for the company “Country Garden”.

Country Garden defaulted on interest payments on some dollar bonds and warned of “great doubts about the recovery of securities. The company warned that it expects a first-half loss of up to 7.6 billion dollars, ahead of earnings due to be announced on Wednesday.

The shares will be used to reimburse the amount of 318.8 million Hong Kong dollars owed by “Country Garden” to the “Kingboard” company as part of a loan facility arranged in December 2021.

The company faces a series of key dates in the coming weeks. Yuan bondholders are scheduled to vote this week on its plan to extend the repayment of bonds actually due on September 4. The company “Country Garden” proposed a grace period of 40 calendar days, as the developer seeks to avoid default on the first payment.
The developer is also facing the end of grace periods for the payment of a total amount of 22.5 million dollar banknote vouchers in early September.
Bloomberg Intelligence Analyst Christy Hung said the share issue “is likely to have little impact in easing the monetary crisis”. ”Its liquidity is still on the way to a downward spiral as buyers and lenders avoid this name due to low confidence in its ability to complete projects, ” he said.
The real estate downturn in China has worsened again, with new home sales falling by the most in a year in July. The central government last week unveiled further easing of mortgage policies to stem the slowdown in the housing sector.
While “Bloomberg ” quoted sources, the country’s largest banks are preparing to cut interest rates on existing mortgages and deposits to support growth.