HONG KONG (Reuters) – China’s Country Garden (HK:2007) submitted preliminary terms for an offshore debt restructuring plan to some creditors late last month, alongside a downward revision of its cash flow projections, according to sources. The struggling property developer aims to avoid liquidation through this process.
The updated cash flow projections were included in the proposal, said two sources directly familiar with the plan and another individual aware of the matter. Cash flow estimates are a standard element in debt restructuring to demonstrate a company’s repayment capacity.
According to two sources, the revised projection indicates weaker cash flow in the coming years compared to earlier estimates shared with some offshore creditors earlier this year. Specific details of the cash flow projections were not immediately available. The sources requested anonymity as they were not authorized to discuss the matter publicly.
Following the Reuters report, a Country Garden spokesperson confirmed that the company had “recently submitted a preliminary draft” of its restructuring plan to key creditor groups.
“The company is engaged in further negotiations with its banking group creditors and the ad hoc group of U.S. dollar bondholders regarding the restructuring plan terms,” the spokesperson said in a statement.
Country Garden emphasized that confidentiality prevents disclosure of specific plan details but expressed hope for reaching agreements with major creditor groups soon. The company declined to comment on the revised cash flow projections.
Once China’s largest property developer, Country Garden defaulted on $11 billion in offshore bonds late last year and is currently contesting a liquidation petition in Hong Kong. The next court hearing is scheduled for January 20, 2025.
The company’s downward revision of its cash flow projections follows a series of government measures introduced over the past year aimed at reviving the struggling property sector. The industry has faced significant challenges in recent years as developers grapple with mounting debt.
Official data released on Friday showed that China’s new home prices experienced their sharpest year-on-year decline in October since 2015, while property investment dropped 10.3% in the first ten months of 2024. These figures suggest that the support measures have had limited impact so far.
In response, the finance ministry last week announced new tax incentives to reduce home purchase costs and stimulate demand. Additionally, China cut its benchmark lending rates by 25 basis points in October to further encourage demand.
Restructuring Efforts
At a July hearing, Country Garden informed the Hong Kong High Court that it intended to release term sheets for its offshore debt restructuring to creditors by September, with plans to seek court approval for the arrangement early next year. However, the company missed the September deadline.
Securing support from key creditors for the restructuring proposal ahead of the January court hearing could enable Country Garden to request additional time from the court to implement its restructuring plan.
PJT Partners (NYSE: PJT), acting as the financial adviser for Country Garden’s main offshore bondholder group in the debt restructuring negotiations, declined to comment.
Ever Credit Limited, a subsidiary of Hong Kong-listed Kingboard Holdings, filed a liquidation petition against Country Garden in February over the non-payment of a $205 million loan.
In recent weeks, Country Garden and some of its offshore creditors have actively discussed a restructuring framework, including potential haircuts for bondholders and a debt-to-equity swap, according to a source familiar with the matter.
Country Garden’s shares have been suspended from trading since April, pending the release of its full-year 2023 and interim 2024 financial results. In a recent exchange filing, the company reported a 31% decline in contracted sales for October, amounting to approximately 4.33 billion yuan ($598 million).
The Chinese property sector has been mired in a debt crisis since mid-2021, leading to widespread defaults among developers and millions of unfinished homes nationwide. Several developers, including state-backed Sino-Ocean Group, now face liquidation lawsuits filed by creditors. Courts have already ordered the liquidation of some firms, including industry giant China Evergrande Group.
