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Once China’s top builder, Country Garden turns into penny stock

Once China’s top builder, Country Garden turns into penny stock
Country Garden Holdings's Fengming Haishang residential development in Shanghai, China, on Tuesday, 12 July 2022. (Photo: Qilai Shen/Bloomberg)

Country Garden Holdings Co., formerly China’s largest developer by sales, has become a Hong Kong penny stock amid increasing scrutiny of its operations and mounting liquidity concerns.

The stock fell as much as 14.4% early on Friday to HK$0.89, on course to close below HK$1 for the first time ever. It has tumbled about 70% from a January peak, the worst performer on the Hang Seng Index in that span. That’s shrunk its market value to just $3.3-billion from an all-time high of around $50-billion in 2018.

Country Garden’s fall from grace underscores how a persistent slump in property prices is weighing on some of China’s strongest private builders. Once considered relatively immune to the credit crunch, the Foshan-based developer has become a proxy for financial contagion in an industry that accounts for about a quarter of the country’s gross domestic product. 

Worries about a debt crisis have increased after Country Garden’s dollar bondholders said they’ve yet to receive coupon payments effectively due Monday. That puts the firm on course for its first public default if it doesn’t make the payments within a 30-day grace period.

A gauge for Chinese developers fell as much as 2.9% on Friday, with Country Garden being the worst performer. It is on course for the worst weekly drop since October, when China began reopening its economy from Covid restrictions. The mainland benchmark CSI 300 Index slumped 1.9% today, set for the worst weekly decline since March. 

Read: Country Garden Is in Danger of a Default Rivaling Evergrande

The troubled builder expects to book up to $7.6-billion in net loss for the first half of this year, and has refrained from addressing its coupon payments in a Hong Kong exchange filing on Thursday night. Earlier, Moody’s Investors Service downgraded the developer by three notches to Caa1, citing “heightened liquidity and refinancing risks”.

At least three brokerages have downgraded the stock’s rating since Tuesday, including HSBC Holdings Plc and CLSA Ltd. The average analyst 12-month price target has dropped to HK$1.32 from an all-time high of over HK$19 in 2018, according to Bloomberg-compiled data. Analysts at Goldman Sachs Group Inc. halved their price target on weak sales and liquidity issues, while maintaining a neutral rating. 

The profit warning is likely “the prelude to an ultimate credit event,” and the company “might already be in preparation for debt restructuring,” JPMorgan Chase & Co. analysts including Karl Chan wrote in a note. “Up until now, we still see no signs of further government support or bail-out.” 

Country Garden didn’t immediately comment when reached by Bloomberg News. 

The developer wasn’t among those invited to the meeting today on the real estate market held by China’s securities watchdog. DM

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