CHINESE property giant Country Garden’s debt problems deepened after its onshore bonds were suspended, sending its shares plunging 16 per cent to a record low on Monday (Aug 14), in a fresh blow to policymakers trying to shore up confidence in a stuttering economy.

Markets remain jittery as the trouble in China’s largest private property developer could have a chilling effect on homebuyers and financial institutions, further dampening the prospect of a near-term recovery in the sector and the broader economy.

A core pillar of China’s economy, the real-estate sector has already seen tumbling sales, tight liquidity and a series of developer defaults since late 2021, with China Evergrande Group, the world’s most indebted developer, at the centre of the debt crisis.

Weak overseas demand, tepid domestic consumption and persistent problems in the property sector have been major factors in the economy’s struggles to mount a solid post-Covid recovery this year.

The meltdown in Country Garden comes after another weak set of data last week and raises further pressure on policymakers to restore confidence in the economy, as more private property companies are close to a tipping point if financial support doesn’t materialise soon.

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Shares of Country Garden dived 16.3 per cent to HK$0.82 by noon, dragging down the Hang Seng Mainland Properties Index, which dropped 3.9 per cent. The stock has lost nearly 50 per cent so far this month.

Shares of its property management unit Country Garden Services fell more than 10 per cent. According to company registry portal Qichacha, a services unit of Country Garden offloaded its 51 per cent stake in a Wuhan-based network technology company.

Country Garden Services did not immediately respond to request for comment.

Country Garden’s offshore bonds also eased, with a few trading at the lower end of 6 US cents on the dollar earlier. Most have since firmed slightly.

In separate filings during the weekend, the firm said it would suspend trading in 11 of its onshore bonds from Monday, in a move that traders said usually signals plans to seek repayment extensions.

In September alone, Country Garden may need to repay more than 9 billion yuan (S$1.69 billion) in onshore bonds.

The suspension of its onshore bonds followed a report by Chinese media Yicai on Friday that the company was heading for a debt restructuring, after having missed payments of two dollar-bond coupons due on Aug 6, totalling US$22.5 million.

Once considered a more financially sound developer, Country Garden’s woes are adding to spillover concerns across a property market already grappling with weak buyer demand.

“The problems in the sector have been brewing for a long time. They have wiped off the wealth effect among investors, and no one wants to buy property now,” said Dickie Wong, executive director at Kingston Securities.

He said the sector’s impact on the economy has reached a “critical moment” and that regulators should implement more policies, including the cutting of interest rates and reserve ratios.

China’s economy grew at a frail pace in the second quarter as demand weakened at home and abroad, prompting top leaders to promise further policy support, and analysts to downgrade their growth forecasts for the year.

State-owned China Jinmao said in a filing on Sunday that it expected to post an 80 per cent decline in net profit in the first half of this year, due to a drop in gross profit margin in some projects and decrease in land development revenue. Its Hong Kong-listed shares slumped over 7 per cent on Monday.

Shares and bonds of Longfor Group and Seazen Group, two remaining larger private developers that are considered financially healthy, have been under pressure since the debt troubles in Country Garden came to light. They dropped 1.7 per cent and 5.7 per cent respectively on Monday.

In an effort to boost market confidence, Longfor has transferred funds worth 1.7 billion yuan ahead of the repayment date for an onshore bond maturing on Thursday, a source with direct knowledge said.

The Beijing-based developer recently also repaid early another HK$3.2 billion (S$554.5 million) of a HK$15.3 billion five-year syndicated loan due January 2024; it has so far made early repayments totalling HK$7.2 billion, the person said, adding the firm planned to repay the remaining amount by the end of this year.

Cailianshe and Debtwire were the first to report the onshore and offshore repayments, respectively. Longfor declined to comment. REUTERS