Chinese developer Country Garden faces winding-up petition in new blow to economy

The property sector in China is facing a liquidity crisis, and Country Garden Holdings said on Wednesday that a liquidation petition had been filed against the troubled developer for failing to repay a $205 million loan.

In a regulatory statement to the Hong Kong Stock Exchange, Country Garden said that it will "resolutely" reject the petition, which was submitted by Ever Credit Limited, a Kingboard Holdings company and a creditor. A May 17 court date had been scheduled.

Early trading saw a more than 12% decline in Country Garden's shares, trailing the benchmark Hang Seng Index's 0.2% increase.

The petition is expected to rekindle worries among creditors and homebuyers regarding the debt problem in the Chinese real estate market at a time when Beijing is stepping up measures to restore trust.

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It happens one month after a Hong Kong court ordered the liquidation of China Evergrande Group, the most indebted real estate developer in the world with $300 billion in liabilities. It currently faces an intricate restructuring process that might take over ten years, according to some investors.

China's real estate sector, which supports the country's second-largest economy globally, has been reeling from crisis to crisis since 2021 as a result of a regulatory crackdown on debt-fueled building that led to a liquidity shortage.

Since then, there has been a series of developer defaults on their repayment obligations; several of these have initiated or are in the process of initiating debt restructuring procedures in order to avoid being subject to bankruptcy or liquidation proceedings.

In order to provide conditions to the market as quickly as possible, Country Garden stated that it would "proactively communicate and work with its offshore creditors on its restructuring plan" going forward.

The liquidation petition will cast doubt on Country Garden's debt restructuring procedure, which has gained steam in recent weeks.

"The radical actions of a single creditor will not have a significant impact on our company's guaranteed delivery of buildings, normal operations and the overall restructuring of overseas debts," Country Garden said in statement.

When Ever Credit, an entity of investment holding company Kingboard, made a statutory demand for repayment in October, it became one of the first known listed companies to begin legal action against Country Garden. Ever Credit owes HK$1.6 billion ($204 million).

To review its financial structure and liquidity position and provide what it called a "holistic" solution, Country Garden has enlisted the help of law firm Sidley Austin and consulting firm KPMG.

Investors from overseas and fund managers formed so-called ad hoc bondholder associations after the company missed a $15 million bond coupon repayment in October.