Country Garden, one of China’s largest property developers, is facing a severe debt crisis that threatens its survival. The company has missed interest payments on some of its bonds and warned that it could default on its debts if its financial performance continues to deteriorate. However, there are still some ways that Country Garden can avoid bankruptcy and restore its reputation. Here are some of the possible strategies that the company can adopt.
Negotiate with creditors
One of the most urgent tasks for Country Garden is to negotiate with its creditors and seek debt extensions or restructuring. The company has about $10 billion of dollar bonds outstanding, but the earliest maturity is not until 2024. It also has more than $1 billion worth of yuan bonds maturing this year. The company has already won a last-minute approval from creditors to extend a 3.9 billion yuan bond, stretching payments into 2026. This note, originally due on Sept. 2, was one of the biggest hurdles this year. However, not all creditors are on board with debt extensions, and some have been pushing for defaults. Therefore, Country Garden needs to work harder and convince its creditors that it can survive and repay them in the future.
Boost sales and cash flow
Another key challenge for Country Garden is to boost its sales and cash flow amid a sluggish property market in China. The company has over 3,000 projects nationwide, but many of them are in smaller cities where demand is weak and inventory is high.
The company also faces competition from other developers who are offering discounts and incentives to attract buyers. To increase its sales and cash flow, Country Garden needs to speed up the delivery of homes that have already been sold, as well as launch new projects that cater to the changing preferences of consumers. The company also needs to cut costs and optimize its operations to improve its margins and profitability.
Comply with regulations
A third major obstacle for Country Garden is to comply with the regulations imposed by the Chinese government on the property sector. Since 2020, the government has introduced a series of measures to curb excessive borrowing and speculation in the real estate industry, such as the “three red lines” policy that limits the leverage ratios of developers. Country Garden has breached two of the three red lines, which means that it faces restrictions on its debt growth and financing activities. To comply with the regulations, Country Garden needs to reduce its debt level and improve its balance sheet quality. The company also needs to align its business strategy with the government’s goals of ensuring housing affordability and social stability.
Seek strategic partnerships
A fourth possible option for Country Garden is to seek strategic partnerships with other entities that can provide financial or operational support. For instance, the company can partner with state-owned enterprises or local governments that have access to cheap funding and land resources. The company can also partner with technology firms or e-commerce platforms that can help it enhance its digital capabilities and customer service. By forming strategic partnerships, Country Garden can leverage the strengths and resources of its allies, as well as diversify its risks and opportunities.
Country Garden is facing a critical situation that requires swift and decisive actions. The company has some options to crawl out of its debt crisis, but none of them are easy or guaranteed. The company needs to balance its short-term liquidity needs with its long-term growth prospects, as well as maintain good relations with its stakeholders and regulators. If Country Garden can overcome its challenges and restore its confidence, it may still have a chance to survive and thrive in China’s property market.