The Chinese real estate developer Country Garden has collapsed again this Monday on the stock market (-18%), to new historical lows, pressured by its loss forecasts, an astronomical debt and the suspension of the negotiation of eleven onshore bonds. Last week he had already defaulted on his obligations to pay two coupons on his bonds, activating a 30-day grace period, causing sharp falls in the price of his shares and fueling uncertainty about his solvency, in a crisis already experienced with his competitor Evergrande a couple of years ago. History repeats itself.
Last Friday, what was the largest real estate developer in China, controlled by the richest woman in the Asian giant, Yang Huiyan, announced that it expects to register losses of between 45,000 and 55,000 million yuan -between 5,675 and 6,937 million euros- in the first semester. The hole is due to the fall in margins and further deterioration due to the drop in sales, as well as the loss from the exchange rate. Its sales fell 35% until June, to about 17,800 million euros. Only in July they were 60% lower, which accelerates the falls.
Country Garden admitted in a letter on Friday that its company was facing "the greatest difficulties" since its inception because of the economic situation, the company explained, which is reeling the Chinese real estate sector again with the problems of another colossus like Evergrande in the memory.
Government measures, which seek to avoid over-indebtedness in the sector by slowing down activity if necessary, have weighed heavily. After increased state regulation, which tightened credit access conditions for developers, a wave of defaults followed, in particular that of the Evergrande group, which undermined the confidence of potential buyers and had repercussions throughout the sector, in the context of a economic slowdown in China.
Like Evergrande, a Country Garden collapse would have catastrophic repercussions for the Chinese financial system and economy.
