Chinese developer Country Garden avoids default on dollar bonds

Country Garden, a Chinese property developer, paid two dollar bonds on Tuesday within the grace period. This ended a month long saga which had been the focus of investors’ worries about China’s struggling real estate sector.

After local media reported that the company had paid late coupons totaling $22.5mn for two $500mn bonds, its Hong Kong-listed shares recovered from a fall of almost 5 percent to 3 percent in late morning trading.

One person who is close to the company, as well as a bondholder, told us that Country Garden made the payments for which the company had missed the initial deadline at the beginning of August. Country Garden declined comment.

The developer, who was cash-strapped, narrowly avoided a default. However traders say that this will not change the story of the widespread financial stress in China’s huge and important real estate industry.

Country Garden’s failure to pay last month sparked concerns about a company once regarded as one of the most financially healthy and safedevelopers in China. Its shares have fallen more than 60% year-to-date despite a recent rally.

In recent weeks, the developer has been scrambling to avoid defaults on dollar bond payments as well as obligations to domestic creditors.

It obtained approval on Friday from creditors to to extend the payment deadline for a bond worth nearly 4bn (550mn), which was due to mature this Saturday. This will allow the developer to pay the debt over a period of three years in installments. One holder of Country Garden’s public bonds said that it may begin negotiations with bondholders for a similar extension.

Beijing is trying to control the decline in China’s real-estate industry, which accounts for around a quarter annual economic activity.

After years of crackingdown on excessive leverage in the mortgage sector, Chinese authorities have accelerated their pace of loosening up mortgage rules this month. Last week, major cities including Beijing and Shanghai lowered the minimum interest rate on mortgages for first-time buyers.

There are few signs that the real estate liquidity crisis is improving in China. Beijing policymakers have so far resisted engaging in the large-scale easing many analysts think is needed to stop home sales from falling.

Country Garden alone owed 1.36tn to the developer as of the end June.

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