Country Garden to begin court battle against liquidation threat
COUNTRY Garden Holdings is set to begin a major legal battle on Friday (May 17), squaring off in a Hong Kong court against a creditor seeking the liquidation of the defaulted Chinese developer.
The court hearing is the first time for Country Garden to make the case that it can come up with a plan for its debt obligations, three months after a winding-up petition was filed against it by a creditor, a unit of laminate maker Kingboard Holdings. The creditor said that Country Garden failed to make payments on a term loan facility of about HK$1.6 billion (S$276 million), plus accrued interest, according to an exchange filing.
The main object of a wind-up petition is to speed up the debt-restructuring process by forcing the defaulted company to come up with a repayment plan through negotiations with creditors. This may be a long process for Country Garden, as bank creditors and bondholders likely will be involved in the talks since the developer borrowed billions of US dollars in both syndicated loans and bonds. There are also small lenders involved, including the firm that initiated the lawsuit, adding another layer of complexity to the negotiations.
If the judge decides against Country Garden, it would mark a dramatic downfall for what was once China’s largest developer by sales. No other developer of its size has faced such a threat since China Evergrande Group received a liquidation order from a Hong Kong court in January. Guangdong-based Country Garden defaulted last October and is saddled with 1.36 trillion yuan of total liabilities, according to its unaudited 2023 interim results. Still, it has attempted to avoid defaults on local publicly issued bonds and continues to deliver homes.
But pressures are mounting, as a near-miss on local debt just days ago underscored. The company missed the initial deadline of May 9 to pay interest totalling 65.95 million yuan on its 3.95 per cent note and 3.8 per cent bond, before going on to pay within a grace period of several days. Both bonds were guaranteed by state-owned firm China Bond Insurance.
The property sector’s continued problems have prompted the government to accelerate efforts to provide support. One proposal under consideration by the State Council is to have local governments buy unsold homes from distressed developers at steep discounts using loans provided by state banks. Such moves have helped boost China’s junk US dollar bonds, which have rallied to their highest level in three years, though some developers’ notes remain at deeply distressed levels.
Country Garden appointed KPMG Advisory (China) as the principal financial adviser for its offshore liability restructuring in January. It engaged Linklaters as its legal adviser last month. A key group of Country Garden creditors named PJT Partners as financial adviser and Kirkland & Ellis as legal adviser in January, Bloomberg reported earlier.
At a monthly management meeting on Monday, Country Garden chair Yang Huiyan said that even though the property sector is still facing difficulties, government policy has become more supportive. As long as the company powers through, “we will embrace the spring”, she said. BLOOMBERG
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