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Raising Capital to Settle Debts: China’s Largest Homebuilder

On Wednesday, China’s largest homebuilder, Country Garden, announced its plans to raise $34 million by issuing new shares in an effort to address its debt problems and mitigate the ongoing property crisis that is impacting China’s economy.

According to a filing with the Hong Kong Stock Exchange, Country Garden intends to issue 350.6 million shares of the company at 77 Hong Kong cents per share on the following Wednesday. However, the proceeds from the share issuance will not go to Country Garden but instead to a subsidiary of Hong Kong-based Kingboard Holdings Limited. Country Garden owes millions of dollars to this subsidiary, which is a materials and chemicals manufacturer with a property division.

To entice investors, Country Garden is offering the shares at a 15 percent discount to Tuesday’s closing price. The company is on the verge of default after missing two interest payments earlier this month, and it has until next week to repay offshore bondholders to avoid defaulting on its obligations to creditors.

The financial troubles faced by Country Garden are a result of the ongoing real estate crisis in China, which is rapidly spreading across the country.

As of 2022, Country Garden had approximately $190 billion in liabilities. In recent years, numerous Chinese property developers, including some major players, have defaulted due to excessive borrowing and mounting debt.

Country Garden had managed to avoid this fate until sales sharply declined a few months ago, exacerbating its financial problems. Besides the missed interest payments, the company is also in negotiations with its creditors to delay the repayment of a Chinese bond, originally due later this week, until 2026.

Country Garden still owes the Kingboard Holdings subsidiary approximately $200 million, which will be paid in installments, with the final payment due in December. The newly issued shares in Country Garden represent 1.27 percent of the company’s existing shares.

Later today, the company is expected to release its financial results for the first six months of 2023. Earlier this month, Country Garden warned that it anticipates a loss between $6.2 billion and $7.5 billion for this period, citing the “unprecedented difficult period” facing China’s property industry.

So far this year, shares in Country Garden have plunged by 67 percent.

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