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Chinese property giants face liquidation threat

First, it was Evergrande, broke in 2021 and ordered liquidated in early 2024 with well over $US300 billion in debt. On Wednesday, it was the turn of its big rival, Country Garden, which has been staggering towards Evergrande’s fate for the past year or more — it has around $US190 to $US200 billion in debt.

Both companies are in default on some of their debt — domestically we do not know (and probably never will), but externally, it’s smallish compared with total debts in the hundreds of billions.

On Wednesday, a Hong Kong court received a creditor’s petition from a company called Ever Credit to liquidate the Chinese developer, a move that will add pressure on the defaulter to quicken its restructuring efforts.

Western news agencies said Ever Credit is a unit of Kingboard Holdings Ltd., a Hong Kong laminates maker which in October issued a so-called statutory demand to Country Garden for repayment.

But will that happen? The legal action against Evergrande lasted two years with no real action, just lots of vague proposals before its liquidation was ordered last month. The first hearing date is scheduled for May 17 at Hong Kong’s High Court, after Ever Credit Ltd. filed its so-called winding-up petition on Tuesday. It claims Country Garden failed to make payments on a term loan facility of about HK$1.6 billion ($US204 million), plus accrued interest, to the lender, according to an exchange filing.

Just how a laminates maker based in Hong Kong managed to have around $US200 million to lend to Country Garden will be one of life’s small mysteries.

Country Garden shares fell 14% on Wednesday in the wake of the news, and its bonds traded around 8 US cents in the dollar — which is default and liquidation territory.

As usual, there’s a lot of confidence around the stricken company — just as there was around Evergrande early on.

In recent months, Country Garden found enough money to repay an 800 million yuan ($US111 million) local bond in full and sold a stake in a mall operator for 3.07 billion yuan with proceeds to be used for offshore debt restructuring.

The company told western media on Wednesday that it has seen a spike in projects approved by local authorities for financing support which western journalists took to mean that the scattered support measures from the central and local governments may be starting to have an impact.

But like all Chinese property companies, it’s not the money for the new projects that is the real concern, it is being paid for completed projects with so many buyers still not settling purchases because their buying prices are way above market.

The latest legal action underlines the alacrity Moody’s showed on Friday with its surprise withdrawal of credit ratings for 11 Chinese property and investment firms.

The most unexpected rating removal was for China Great Wall Asset Management, a major state-owned bad-debt manager established in 1999 to handle Agricultural Bank’s bad loans. Moody’s eliminated its Baa3 score, just shy of junk territory, citing “business reasons” without detailed explanation.

Moody’s first removed Great Wall’s rating on Friday, later in the day shocking markets by withdrawing ratings for 10 property companies, including Logan Group, Ronshine China, and Zhenro Properties Group.

Western analysts interpret this decision as a sign of looming defaults for property firms. The withdrawal of Great Wall’s rating suggests a growing chance of the asset manager handling a new wave of bad debts from the property sector.

This action follows Moody’s December decision to downgrade its outlook for Chinese sovereign bonds to negative, which drew criticism from the government.

This action against Country Garden may be dismissed, postponed, or even acted on — but like with Evergrande’s liquidation, it will have the effect of separating the two biggest black holes in Chinese property from the rest of the mess, which may be to the benefit of smaller rivals and the government in Beijing.