China's Housing Market Slump Is Set To Deepen

Chinese property giant Country Garden is in trouble after a creditor filed a petition to liquidate the real estate company over unpaid debt.

Country Garden Holdings Co. faces a liquidation threat over unpaid debts, it was reported on Wednesday.

The turmoil comes amid a prolonged property slump in China, with a Hong Kong court receiving a creditor's petition for the liquidation of the company.

The petition, initiated by Ever Credit Ltd., stems from Country Garden's failure to settle a term loan facility worth approximately $204 million, including accrued interest.

This legal move marks a new phase in the debt crisis engulfing one of China's largest property developers. The first hearing is scheduled for May 17 at Hong Kong's High Court, highlighting the urgency of the matter.

The situation draws parallels to the bankruptcy of Evergrande, another Chinese real estate titan that succumbed to its $200 billion debt burden, filing for bankruptcy in the U.S. in August 2023. The collapse of Evergrande, amid efforts by Beijing to downplay the crisis, has sent shockwaves through the real estate industry and financial markets, with Country Garden now teetering on the brink of a similar fate.

Newsweek has contacted Country Garden for comment via email.

The filing of the winding-up petition against Country Garden is part of a broader trend of liquidation demands hitting the industry, contributing to negative sentiment and uncertainty. The crisis underscores the fragility of an industry once deemed a bulwark of the Chinese economy. This development not only highlights the precarious position of Country Garden but also the broader challenges facing China's property sector, which has been a cornerstone of the country's economic growth.

Country Garden's financial woes have been mounting, with the company recently risking default after missing a $15 million coupon payment to bondholders.

The missed payment has prompted bondholders to seek a debt restructuring deal to mitigate their losses. Among these bondholders is an entity holding $2 billion in the company's offshore bonds, signaling the potential gravity of a default on the broader financial market, Newsweek reported earlier.

However, some experts believe Country Garden may not face a forced liquidation like Evergrande did.

"We believe that the company will launch an offshore debt restructuring plan as soon as possible to fend off the winding-up petition and settle the defaulted debts," Jason Sze from personal finance firm iFAST Financial told the BBC.

Analysts view the petition as a necessary step for creditors to exert pressure on the developer to expedite its debt restructuring efforts. Ever Credit, a subsidiary of Hong Kong-based Kingboard Holdings Ltd., had previously demanded repayment from Country Garden in October.