Will Country Garden Collapse with their Debt Load?

Contributed By: The Big Fat Whale

Recent headlines from major publications such as Reuters, Bloomberg, CNA etc., have painted a bleak outlook for Country Garden. It seems to point that they would likely default on their debt which could potentially lead to a collapse of the whole company.

Country Garden was the largest real estate company in terms of sales in China last year. They generate 96% of their cashflows from real estate sales.

Headline numbers put them in debt of 196 billion US Dollars (1.4 trillion RMB). There have been also delays in the payment of interest on bonds and postponing the repayment of a key loan.

With the slowing of China's economy coupled with inflationary pressure on construction costs, it has been a tough time for China developers. Country Garden is also not in the most ideal target segment, 60% of their property projects are located in 3rd to 4th-tier cities.

This is the segment where prices have fallen the most and the target buyers have low purchasing power.

We decided to have a look at their financials to have a better sense of the situation. Before we move into the numbers, let's look at the background of Country Garden so we can paint a better narrative of their current predicament.

Background of Country Garden

Yang Guoqiang founded Country Garden in 1992 in Beijiao Town, Foshan City. He built the company from scratch, having previously worked as a farmer and on construction sites.

The company now has interests in property development, construction, fitting and decoration, property management, and hotel operations in a wide variety of global markets.

It was listed on the Stock Exchange of Hong Kong in 2007 with its annual sales exceeding RMB100 billion in 2013. The Company made it to the list of Fortune Global 500 for the first time in 2017.

In 2015, Chinese insurance giant Ping An became the second largest shareholder in Country Garden by acquiring 9.9% of the company for US$800 million.

Forest City Johor Bahru

China made up the bulk of their business with 3125 developments as compared to 31 overseas developments. But what we could relate to when we talk about Country Garden, will be their grandiose Forest City Project that is just across the Causeway in Johor Bahru, Malaysia.

Forest City is meant to be a US$ 100 billion dollars development that was hyped up to be a paradise with turtles and white-sand beaches. To date, only US$ 4.3 billion has been invested and housing less than 10,000 residents. It is a far cry from their 700,000 projection.

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