China’s Country Garden Buys Time to Repay Debt—but Not Long

HONG KONG—China’s top surviving private developer bought more time to sort out its liquidity problems, giving investors hope that it will cobble together enough cash to avoid defaulting on its U.S. dollar bonds this week.

Country Garden Holdings on Friday said it got approval from investors in mainland China to extend the maturity date of $537 million in domestic bonds by three years. The yuan-denominated debt was originally due Monday. An offshore unit of the 31-year-old property giant separately made an interest payment of around $600,000 on a bond denominated in Malaysian ringgit on Monday, according to a person familiar with the matter.

The debt extension and bond payment created optimism that Country Garden can address a debt load that includes a range of foreign currency bonds—and a make-or-break interest payment this week.

The developer’s Hong Kong-listed shares jumped 15% on Monday, closing at their highest level in about three weeks. Other Chinese property stocks also gained, while the broader Hang Seng Index rose 2.5%.

Country Garden’s bond prices also edged higher, although most of its dollar bonds remained below 10 cents on the dollar, levels that indicate a high probability of default.

Chinese authorities have taken more steps in recent days to shore up the country’s beleaguered housing market, where sales have declined for most of the last two years. Last Thursday, the People’s Bank of China lowered minimum down payments on first and second home purchases and told banks they can lower the rates on existing mortgages. Regulators also recently expanded the definition of a first-time home buyer, a category that comes with lower mortgage rates and smaller down payments.

The rule changes helped to draw more people to real estate showrooms over the weekend. Demand for new homes in Shanghai increased noticeably after the new measures were implemented, according to Chen Julan, a senior analyst with China Index Academy. In Beijing, some developers withdrew discounts and adjusted their prices slightly higher, the research firm said.

The new rules could give a temporary boost to home sales in about a dozen major cities, said Song Hongwei, a research director of Tongce Research Institute, which tracks and analyses China’s real-estate market. He said lower-tier, poorer cities may not reap similar benefits and predicted that the overall housing market will eventually weaken again.

Country Garden’s recent cash crunch has largely been a result of slumping home sales in many parts of China. The company is one of the biggest surviving privately run developers and has a large presence in the country’s poorer regions. In August, it sold homes valued at a total of around $1.1 billion, almost three-quarters lower than a year earlier.

The company missed $22.5 million in coupon payments on bonds with a total face value of $1 billion in early August, and has a 30-day grace period to come up with the money. That grace period expires this week.

Even if it does pay the interest on its dollar bonds this week, it has many more coupon payments due in the coming months. Investors are skeptical that it can avoid default—unless its sales start growing again. Country Garden’s most recent financial report said that as of June 30, it had the equivalent of $15 billion in bonds, bank debt and other borrowings due within a year.

The company lost more than $7 billion in the first half of 2023, its worst financial performance since it went public in 2007, after its contracted sales for the period shrank 30%. Country Garden told investors it was “deeply remorseful” but said it was committed to turning things around.

China’s economy has struggled through much of this year, with falling exports, weak manufacturing and a slowdown in consumer spending all pointing to problems broader than a property slowdown. But cracks in the property sector, which was once seen as a major source of wealth creation in China, are exacerbating the broader economic malaise.

Chinese property developers’ falling property margins and weak sales will weigh on earnings until the end of next year, according to analysts at S&P Global Ratings. Not all developers will feel the same degree of pain. Those with links to the government or with good access to financing are better positioned to endure the fall in margins, the S&P analysts said in a note on Monday.

For years, tech entrepreneur Asher Waldfogel and his wife, Helyn MacLean, dreamed of building a modern house in Palo Alto, Calif.

The couple, however, worried about clashing with the Mediterranean-style architecture typically associated with their neighborhood of Old Palo Alto.

So they tapped architect Steven Ehrlich to create a design that paid homage to its surroundings with stucco, mahogany and titanium zinc cladding. They spent $20 million over several years building the house, completed in 2005.

Designed for indoor-outdoor living, the house has matching mahogany paneling and limestone both inside and out. Arthur Sharif/Sotheby’s International Realty

The dining room is between an outdoor garden and the staircase. Arthur Sharif/Sotheby’s International Realty

Now looking to be closer to their adult daughter on the East Coast, they are putting the five-bedroom home on the market for $44 million—the most expensive listing in Palo Alto.

Waldfogel is an angel investor who co-founded Redback Networks, a telecommunications-equipment company. MacLean previously had a career in fundraising.

The kitchen and family room open to the garden and pool. Arthur Sharif/Sotheby’s International Realty

Cast alcoves and mahogany shelves house the couple’s books and ceramics. Arthur Sharif/Sotheby’s International Realty

The couple purchased the roughly 0.4-acre site for $7.1 million in 2000 and demolished a circa-1930s Spanish Colonial home. The house they built pinwheels around a central staircase. It has 7,900 square feet of livable space, with four distinct courtyards and a pool.

A key feature of the home is a cast-in-place concrete wall, or spine, that is two stories high and about 80 feet long. “There’s a little bit of controlled chaos in what comes out of the form,” unlike a perfectly uniform surface, Waldfogel said. “If you want that, you do it in plastic.”

Ehrlich said it took a few tries to get the concrete wall right. Arthur Sharif/Sotheby’s International Realty

‘It’s a really hard material to tame,’ Ehrlich said of concrete. Workers learned as they went, and Waldfogel and Helyn grew to appreciate the imperfect material. Arthur Sharif/Sotheby’s International Realty

A central staircase is housed in a glass tower. Arthur Sharif/Sotheby’s International Realty

Waldfogel said he and his wife are thinking about the next phase of life now that their daughter is grown, although they have not decided where they will move. They also have a home in Sun Valley, Idaho.

“Right now we’re just trying to emotionally let go and decide what to do next,” he said.

Arthur Sharif/Sotheby’s International Realty

Two wings of the house are connected by horizontal planes. Arthur Sharif/Sotheby’s International Realty

Palo Alto, an epicenter of venture capital and tech startups in Silicon Valley, is home to some of the country’s biggest tech titans. Sales volume and prices are rising, with a median sale price of $3.5 million for the three months ending in August, up 5.8% year-over-year, according to real-estate brokerage Redfin.

Arthur Sharif of Sotheby’s International Realty—San Francisco Brokerage has the listing.

China’s Country Garden Buys Time to Repay Debt—but Not Long

The property giant has a second chance to make an interest payment this week

A five-bedroom Palo Alto home designed by Steven Ehrlich is listed for $44 million, making it the city’s most expensive listing. Built around a dramatic concrete spine, the home features four courtyards and a pool.