COUNTRY GARDEN Yang Family Shows Sincerity in Debt Repayment

Author | Cao Anxun

Editor | Zhang Xiaoling

After experiencing a major adjustment for two years, the Chinese real estate market did not stabilize as expected. Instead, it encountered another downturn in this hot summer, leading to crises in companies like Wanda, Country Garden, and even Evergrande.

Unable to pay two interest payments on time and announcing a loss in the financial report, Country Garden proposed a bond extension plan. Yang Guoqiang and his daughter Yang Huiyan entered into their first game with the bondholders and embarked on the path of market-oriented self-rescue.

From August 23rd to 25th, Country Garden held its first bondholders' meeting to vote on the restructuring plan for the "16 Biyuan 05" bond.

The bond has a total issuance size of 5.83 billion yuan, with a current balance of 3.904 billion yuan and a coupon rate of 5.65%. It is due on September 2nd and is one of Country Garden's large domestic bonds that will mature soon.

According to the previously released bond extension plan, Country Garden plans to extend the maturity by three years and repay the principal in seven installments. The down payment is 6% (with 2% of the principal paid in the first, second, and third months after maturity). The principal repayment ratios for September 2024, September 2025, and March 2026 are 10%, 15%, and 25% respectively, with the final installment in September 2026 being 44%.

Some bondholders believe that a three-year extension is too long. In response, individuals close to Country Garden said that it is easy to make promises, but looking back at real estate companies that have extended their bonds for 1 to 1.5 years, they eventually fell into a situation of second or even third extensions. It is better to settle the matter once and for all.

In order to win the support of the bondholders, Country Garden proposed to pay the interest normally without any discount, which is different from many other real estate companies that have deferred the interest.

It is worth mentioning that Country Garden has also added credit enhancement measures by pledging the equity of five project companies located in Longyan, Haiyang, Shuyang, Huaian, and Xinghua, Fujian Province.

Moreover, the guarantee targets provided by Country Garden have undergone equity penetration and are clean and clear. The overall plan is to ensure feasibility.

According to analysis by lawyers, in the event of liquidation, the rights of homebuyers are prioritized, followed by domestic public bonds, which are superior to offshore US dollar bonds. By increasing credit enhancement, Country Garden provides additional debt repayment guarantees for the original pure credit bondholders.

Bai Wenxi, Chief Economist of IPG China, stated that in the current market conditions and industry status, Country Garden's debt restructuring plan has advantages compared to those of other distressed real estate companies.

"A three-year extension, interest payment without discount, and the addition of credit enhancement measures mean that Country Garden has shown great sincerity in order to win the cooperation and support of the bondholders. It also indicates a better expectation for the improvement of the market," he said. Also, some industry insiders believe that in the "16 Biyuan 05" extension plan, the initial payment of 6% of the principal in the first three months is not ideal, but it is relatively practical. For investors, it may be a better choice. This indicates that the company has a strong willingness to repay debts and is trying to avoid the risk of a second extension.

For the current COUNTRY GARDEN, without government intervention, the only way to successfully resolve the risks is to take the path of market-oriented self-rescue, including debt restructuring, negotiations, and ensuring delivery and subsequent sales.

The various actions taken by COUNTRY GARDEN at the moment indicate that the Yang family is determined to self-rescue through market-oriented means and has a certain level of confidence in ensuring delivery, sales, cash flow improvement, and repayment to creditors.

Their confidence in fulfilling their commitments lies in the long-term accumulation of sales resources and operational capabilities. People close to COUNTRY GARDEN stated that the current balance of funds in the regulatory account of COUNTRY GARDEN, plus the already collected receivables from sold properties, can basically guarantee the completion of future delivery tasks.

Since cash at the project level is managed in a closed manner and has a very low proportion of freely available funds, the mismatch of resources in COUNTRY GARDEN will be alleviated as projects are gradually delivered over the next 2-3 years and the funds in the regulatory account are gradually released.

Some institutional insiders believe that the main problem currently faced by COUNTRY GARDEN is the liquidity dilemma caused by the concentration of bond maturities in the short term, rather than a significant risk to the company's ongoing operating capabilities. The overall asset quality and operational capabilities of the company are still good.

He believes that if the debt extension plan can be successfully approved, it will provide COUNTRY GARDEN with a breathing space of 2 to 3 years, promoting overall production and operational improvements, as well as the release of funds.

For COUNTRY GARDEN, which has remained resilient and continues to demonstrate more commitment to debt repayment, there is hope for a way out from the creditors.

According to Wall Street News, there is another proposal at this creditor meeting jointly proposed by some creditors, requesting COUNTRY GARDEN to fully repay the principal and interest of the bonds.

However, judging from the overall intention of the creditors, the probability of the extension plan of COUNTRY GARDEN being approved is high.

Yan Yuejin, the research director of E-House Research Institute, also believes that there is a high probability of the extension plan of COUNTRY GARDEN being approved. The plan is relatively scientific, solving the debt repayment issue in stages from easy to difficult. Moreover, COUNTRY GARDEN has always insisted on debt repayment and building trust, showing a strong will to survive. Its credit standing among private real estate developers is relatively good.

During the previous wave of defaults in the real estate industry, the Yang family persisted in debt repayment until the last moment. The aforementioned source stated that since July 2023, COUNTRY GARDEN has been facing severe liquidity constraints, but it has managed to fulfill the repayment of the "21 Tengyue Construction MTN02," "21 Tengyue Construction MTN003," "20 Bidi 02," and "19 Bidi 02" bonds, with a total repayment scale of 5.89 billion yuan, which has almost exhausted the company's remaining cash resources. With the foundation of trust and sufficient extension goodwill, the Yang family is expected to rebuild their credit line with the help of creditors and lead COUNTRY GARDEN back into a relatively favorable state of debt repayment and operation.

Over the past two to three years of risk clearance in the real estate industry, for troubled real estate companies, there is no need to discuss whether to rescue or not, but rather to seek market-oriented solutions, which has become the consensus of the industry and institutions.

Today, bond extensions and even overall debt restructuring no longer terrify investors. More and more creditors are willing to negotiate with real estate companies to come up with a solution that exchanges time for space, allowing them to return to normal operations. Ultimately, they have the hope of "coming ashore" just like leading real estate companies such as Evergrande and Sunac. After debt restructuring, their operations have gradually stabilized.

As the largest private real estate company in the country, if COUNTRY GARDEN's extension plan is approved, it will also send a positive signal to the industry, indicating that investors and creditors still believe in the gradual improvement of the real estate market, which is expected to boost the confidence of the entire industry and fellow real estate companies.

Bai Wenxi believes that if the plan is approved, it will have a positive reference significance for the industry, confirming the sincere attitude and sufficient strength in debt restructuring, which is an important prerequisite and guarantee for obtaining the support and cooperation of creditors.

An optimistic signal is that some foreign capital is returning to the real estate market. According to the Hong Kong Stock Exchange's equity disclosure data on August 18, COUNTRY GARDEN received an increase in holdings of approximately 171 million shares by JPMorgan Chase, involving approximately HKD 144 million. After the increase, JPMorgan Chase's shareholding ratio rose from 4.42% to 5.04%.

Perhaps, as recently mentioned by the spokesperson of the National Bureau of Statistics, Fu Linghui, although the debt risks of some leading real estate companies have been exposed, the problem is temporary. With the gradual implementation of market adjustment mechanisms and optimization of real estate market policies, the risks of real estate companies are expected to be gradually resolved.

The credit storm in the real estate industry has not yet subsided. Major leading real estate companies such as Evergrande, Sunac, COUNTRY GARDEN, and Vanke are heading towards different destinies. After witnessing the golden age side by side, some are becoming silent while others are becoming more stable. A familiar yet unfamiliar new era has begun.