Yang Huiyan has seen her wealth plunge by a whopping $24.8 billion over the past two years, as shares of Country Garden have dropped to an all-time low. The 41-year-old chairman still has a net worth of $4.8 billion, but it’s a dramatic reversal of fortune for Yang who had been crowned the world’s youngest female billionaire when she debuted on the wealth rankings in 2007 at the age of 26.
Yang’s wealth, which peaked at $29.6 billion in 2021, is derived mostly from her 57% stake in the company, whose shares fell 23% in Hong Kong this week on news that the property developer had missed interest payments on two U.S. dollar bonds. Country Garden failed to pay $22.5 million that was due August 6, but it still has a grace period of 30 days before a default can be triggered.
“Country Garden’s ability to pay remains very uncertain at this point,” says Nicholas Chen, a Singapore-based analyst at research firm CreditSights. “You can be a ‘high quality’ developer but still run into trouble, like what had happened to some of its peers previously.”
Long considered a top-tier player in China’s real estate market, the company had previously set itself apart as one of the few remaining property developers that was able to meet its debt obligations. But now the pressure is on Yang to see whether she can scrape together enough cash to repay debt, which includes roughly $4.3 billion in onshore and offshore bonds that are due in 2024. That figure includes bonds which are puttable by investors, meaning they have the right to demand payment from Country Garden.
Already one of the company’s offshore bonds maturing in January 2024 has plunged to just 12 cents on the dollar, suggesting that investors are pricing in an imminent default, according to prices compiled by Shanghai-based financial information platform Dealing Matrix. Moody’s Investors Services downgraded Country Garden three notches deeper into junk on Thursday, citing reasons including deteriorating liquidity and heightening refinancing risks
A Country Garden spokesperson said usable cash had declined due to falling sales, changes in the refinancing environment and the impact from various fund regulations. Last week, the companya planned $300 million share sale for unspecified reasons.
Jeff Zhang, a Hong Kong-based analyst at research firm Morningstar, says Country Garden may have done so over concerns about its share price, which has more than halved this year and has beenby analysts at JP Morgan Chase & Co. due to mounting liquidity concerns. Last year, when it raised funds through the same channel, shares had to be at a steep discount to its market price.
And analysts say when Country Garden publishes interim results later this month, its financial strength is likely to have worsened further.
Amid the sector-wide slump, the builder posted a full-year loss for 2022 of $885 million—marking the first time it had fallen into the red since going public in 2007. Country Garden, in fact, has warned that it expects to keep hemorrhaging cash. The company said in a late Julyit would post an unspecified loss for the first six months of 2023, compared with a profit of $86 million generated during the same period a year ago.
The developer has been hit particularly hard because roughly two-thirds of its projects by value are located in lower-tier cities, where property pricesamid the weakness in China’s wider economy, as well as mounting signs of deflation. Contracted sales declined by an estimated one-third to $18 billion in the first half of this year, followed by a 60% slide to $1.7 billion in July, according to Moody’s.
The agency said in its Thursday research note that the missed coupon payments would further hurt market confidence and restrain its funding access. Since Yang became chairman, Country Garden has only had access to limited funding streams. The developer$115 million in April in financing from Flow Capital and in July from Chong Hing Bank. It was also able to sell bonds onshore, where a unit in May $236.8 million worth of medium-term notes.
Still, liquidity has been under “a lot of pressure,” and “we can’t rule out the default,” says Warut Promboon, a Hong Kong-based managing partner at research firm Bondcritic. Ultimately, survival “depends on upcoming support from the government and state-influenced banks,” he says.
It is now up to the billionaire, who graduated from Ohio State University with a bachelor’s degree in marketing and logistics, and who has long been groomed for succession after her father transferred the 57% stake to her in 2007, to make that happen. Her 35-year-old sister, Yang Ziying, also sits on the board, while the billionaire’s husband, Chen Chong, is a non-executive director.
Together, they are responsible for steering a business the elder Yeung founded in 1992, and grew by offering residences outside major urban centers. Country Garden’s strategy enabled its fast growth with relatively lower costs in acquiring land sites. After taking over, his daughter$826 million worth of shares in a property management arm, Country Garden Services Holding, to a family charity. The Hong Kong-listed unit has fallen by almost two-thirds so far this year.
Now, the main property operation says it will “actively seek guidance and support from the government and regulatory authorities,” according to the aforementioned late July filing. It will also consider adopting measures such as cutting operating expenses and accelerating loan collection to protect cash flow, according to the filing.
But Country Gardenin a list of developers that recently met with newly appointed central bank governor Pan Gongsheng, who said authorities would increase funding support for the private sector. It doesn’t appear to be invited to a meeting that securities regulators will hold with real estate companies on Monday either, Bloomberg.
Optimists argue that the developer is still considered systematically important due to its size, and Beijing may now have more incentives to stabilize the real estate sector amid a wobbly economic recovery.
But other big developers, notably the debt-stricken China Evergrande Group, have been defaulting on their debt obligations. What’s more, even the state-linked real estate companies, for example Sino-Ocean Group Holding, have recently missed payments andan extension plan.
“It is just really difficult to say,” says one investor of Country Garden bonds who requested anonymity in discussing the matter, adding that the company has communicated little with offshore bondholders, including on what support it may receive.
Amid all the uncertainties, Yang has pointed to another strategy. When releasing its 2022 annual results, the companyto increase its landbank in tier-1 and tier-2 cities to about half of the total by value over the next three to five years.
Analysts say this is easier said than done, as expanding in the likes of Beijing and Shanghai would pit the now weakened Country Garden against still powerful state-run rivals in a fiercely competitive market. He Ruiying, an analyst at Singapore-based research firm Lucror Analytics, says Country Garden’s “survival in the current form” would depend on a major improvement in sales and access to capital markets.
“Supports in funding access seem to be more crucial for now,” she says. “It is hard to believe that Country Garden can change its business model or landbank structure overnight.”
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