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By Clare Jim
HONG KONG, Oct 17 (Reuters) - Country Garden's entire offshore debt will be deemed to be in default if China's largest private property developer fails to make a $15 million coupon payment on Tuesday, the end of a 30-day grace period.
WHAT IS EXPECTED TO HAPPEN NEXT?
A non-payment is expected after Country Garden last week warned about its inability to meet offshore debt obligations. Its dollar bonds are being bid at below 6 cents on the dollar.
Country Garden has appointed Houlihan Lokey, China International Capital Corporation (CICC) and law firm Sidley Austin as advisers to carry out an offshore debt restructuring.
As is common practice, they should start negotiations with bondholders on the restructuring proposals. It could take many months before an agreement is reached.
Bondholders are also in talks with other financial institutions and law firms to form a group to consider their options.
As more Chinese developers move towards restructuring debt, their offshore creditors are expected to be offered less favourable terms amid a worsening outlook for the country's struggling real estate sector.
A default by Country Garden would exacerbate the country's real estate crisis, put more strain on its onshore lenders, and could delay the prospect of a recovery of not only the property market, but the overall Chinese economy.
WHO IS COUNTRY GARDEN?
Until this year, Country Garden was the largest Chinese developer by sales. The company was previously considered financially sound compared with peers such as China Evergrande Group, which defaulted on its debt in late 2021.
Country Garden had total liabilities of 1.4 trillion yuan ($191.46 billion) at the end of June, including nearly $11 billion of offshore bonds and $6 billion of offshore loans.
While Country Garden's liabilities are only 59% as big as those of Evergrande, the world's most indebted developer, it has more than 3,000 projects across all China's provinces, compared to around 800 for Evergrande.
Regulators and homebuyers are closely watching whether Country Garden's liquidity stress will make it unable to complete construction projects, which could stir social unrest.
Country Garden has said repeatedly that "home delivery" is its top priority.
HOW BAD IS THE PROPERTY SECTOR CRISIS?
Since the sector's debt crisis unfolded in mid-2021, companies accounting for 40% of Chinese home sales have defaulted, most of them private developers. Chinese developers have defaulted on more than $114.6 billion of $175 billion in dollar bonds outstanding since 2021.