碧桂园 Uses Property to Settle Debt, Struggles to Stay Afloat
SHANGHAI – Chinese property giant Country Garden Holdings (碧桂园), facing a mounting debt crisis, has resorted to using real estate assets to settle a 423 million yuan (approximately $58 million) debt owed toa supplier. The move highlights the company’s financial struggles and the broader challenges facing China’s property sector.
The debt settlement involved Country Garden’ssubsidiary, Bi Pu Real Estate, transferring ownership of three properties in Shanghai to 帝欧家居 (Diou Home Furnishings), a supplier of building materials. The deal was structured as a combination of equity and debt transfer, with Diou Home Furnishings paying 157 million yuan for the equity and 266 million yuan for the debt.
The move comes as Country Garden faces a liquidity crunch, with its financial reports delayed and its cash reserves dwindling.As of June 2023, the company had 1011.15 billion yuan in cash and cash equivalents, but a staggering 13,641.6 billion yuan in total debt.
This move by Country Garden is a sign of the company’s desperate need tofree up cash, said Yan Yuejin, deputy director of the Shanghai E-House Real Estate Research Institute. The fact that they are using prime properties in Shanghai to settle debts shows the severity of their financial situation.
The deal has also raised concerns about the financial health of suppliers who are increasingly exposed to the risks ofworking with struggling property developers. Diou Home Furnishings, for example, had to write off 57.11 million yuan in receivables from Country Garden, highlighting the potential for further losses.
The supplier is taking a risk by accepting these properties as payment, said Yan. It remains to be seenwhether they will be able to sell them quickly and recoup their losses.
The use of property to settle debts is becoming increasingly common in China’s property sector as developers struggle to meet their financial obligations. Other companies, such as Monalisa Ceramics and Huida Sanitary Ware, have also resorted to similar arrangements, acceptingproperties in lieu of cash payments.
Country Garden, once one of China’s most successful property developers, has been hit hard by the government’s crackdown on the real estate sector and a decline in home sales. The company has been struggling to complete projects and deliver homes to buyers, leading to growing concerns about itsability to meet its financial obligations.
In a statement, Country Garden said it was actively seeking ways to revitalize its assets and was committed to fulfilling its obligations to deliver homes to buyers. The company also highlighted its recent delivery performance, stating that it had delivered 154,500 homes in the firstsix months of 2024, covering 29 provinces and 178 cities.
However, the company’s future remains uncertain. The debt crisis in the property sector is likely to continue, and Country Garden’s ability to navigate these challenges will be crucial to its survival. Thecompany’s actions will be closely watched by investors and industry analysts alike, as they offer a glimpse into the future of China’s property market.
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