All eyes on Country Garden's cash flow as troubled firm set to report loss

Just how cash-strapped and embattled Country Garden Holdings is will be the focus when China's largest private property developer is due to report its first-half results on Wednesday.

The liquidity stress in the company became public this month after it missed two-dollar coupon payments and sought to extend an onshore private bond repayment, deepening contagion fears in China's struggling property sector and the wider economy.

Country Garden's total liabilities stood at about $194 billion (RM901 billion) at the end of 2022. It has already flagged a net loss of up to 55 billion yuan ($7.55 billion) in the first six months, a staggering slide from the 6.7 billion yuan loss it posted in the second half of 2022 and from the net profit of 1.9 billion yuan it posted a year earlier.

Like its peers, the company, which was China's largest property developer by sales volumes until this year, has been hurt by a drop in margins as property sales and the value of the homes themselves plummeted in China's slowing economy. Lower sales, coupled with tighter access to fresh funding in recent years, worsened its cash squeeze.

An analyst with a foreign investment bank said investors were looking for details on short-term debt and new bank loans to better understand Country Garden's cash flow.

Because most of its funds are locked up in the escrow accounts of project contractors to ensure the delivery of homes over the next two years, there is little cash left for repaying debt at the group level, a company official said.

About 60% of the company's total onshore bonds mature over the remaining months of the year, and if the company is able to extend its repayment deadlines, it could be able to improve its operations and cash flow, the official added. They declined to be named because they were not authorised to speak to the media.

JP Morgan has estimated it would cost about 316 billion yuan to finish all the company's projects under construction, including both sold and unsold flats.

Country Garden declined to comment ahead of its earnings. The company will also not hold meetings with analysts and the media after the earnings announcement, the first time it has skipped these conferences in many years.

On Tuesday, Country Garden proposed adding a 40-day grace period for the repayment of a 3.9 billion yuan private onshore bond due Saturday. Creditors will have until Thursday to approve a proposal to extend the full repayment by three years.

China International Capital Corporation (CICC) has been hired as a financial adviser to Country Garden, and the developer was expected to kick off a restructuring process soon, Chinese news outlet Yicai has reported.

Last Friday, the developer sold its 26.7% stake in Guangzhou Asian Games City for 1.3 billion yuan to state-owned peer China Overseas Land & Investment. The company, however, said on Monday it would go ahead with a $100 billion project in Malaysia.