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A construction site of residential buildings by Chinese developer Country Garden is pictured in Tianjin, China August 18, 2023. REUTERS/Tingshu Wang/File Photo

Country Garden (2007.HK), the largest private property developer in China, has successfully made interest payments on two U.S. dollar bonds just as the grace period was due to end on Tuesday, providing relief for the embattled company and the crisis-hit Chinese property sector. The failure to pay the coupons on the bonds, totaling $22.5 million, on August 6 had heightened concerns over the developer’s cash situation and kept markets tense throughout the 30-day grace periods.

This timely payment, although a relatively modest amount, comes as a positive development for financial markets, as it helps to restore faith in China’s continuous policy stimulus efforts aimed at stabilizing the struggling property market and broader economy. The failure to make the payment could have had serious implications, including an increased risk of default and demands for accelerated payments by holders of other dollar bonds, according to industry experts.

The response from Country Garden to inquiries about this matter is still pending, and the person close to the company who provided this information chose to remain anonymous due to lack of authorization to speak with the media. Despite the payment, the company’s share price experienced a marginal decline of approximately 3% on Tuesday, indicating little change following the news of the payment.

This recent development follows the approval obtained by Country Garden from onshore creditors on Friday to extend a private bond valued at 3.9 billion yuan ($536 million). It is worth noting that prior to the non-payment of the coupons on the two dollar bonds last month, Country Garden had not missed any debt payment obligations, either onshore or offshore. However, the slowing demand for new homes resulted in tighter cash flow, causing the failure to make the payments.

Looking ahead, Country Garden still faces significant challenges as it has approximately $162 million of offshore bond interest payments due throughout the remainder of the year, as reported by CreditSights. This situation underscores the vulnerability of China’s real estate sector, which accounts for around a quarter of the global economy and has been further destabilized by the government’s efforts to combat high leverage since 2021.

Compounding the problems is a lackluster post-pandemic economic recovery, as highlighted by a private-sector survey showing the slowest expansion in services activity in eight months in August. Weak demand continues to hinder the economy, and the efficacy of stimulus measures in reviving consumption has been limited. The latest round of stimulus measures includes the reduction of mortgage rates and preferential loans for first-home purchases in major cities.

“While efforts to increase mortgage lending are welcome, a more comprehensive package of support is likely required to restore confidence in the real estate sector and put vulnerable property firms on a more stable footing,” commented Susannah Streeter, the Head of Money and Markets at Hargreaves Lansdown, UK.

In light of these challenges and the complex legal and financial nature of real estate transactions, the AI legalese decoder can prove invaluable. This advanced tool utilizes artificial intelligence to analyze and interpret legal documents, contracts, and agreements, providing swift and accurate translations into plain language. By using the AI legalese decoder, stakeholders in the real estate sector, including developers like Country Garden, can navigate complex legal issues with ease, ensuring compliance and reducing the risk of misunderstandings, thereby increasing overall operational efficiency and mitigating potential financial risks.

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