The Chinese company Country Garden sells its inventory to pay off its debts

Chinese homebuilder Country Garden said on Wednesday it lost $7.1 billion in the first six months of the year, piling pressure on China’s largest real estate developer as it teeters on the brink of financial collapse.

Country Garden’s losses, and an accompanying cash crunch, are the latest sign of a deepening crisis in China’s real estate sector, where years of excessive borrowing have left many of the country’s biggest developers deeply in debt that they are struggling to pay. And with the Chinese economy slowing in recent months, an already stagnant real estate market has come to a standstill, pushing Country Garden, which has a total debt of nearly $187 billion, to the brink.

Country Garden’s six-month net loss was 51.5 billion yuan, compared with a profit of 1.9 billion yuan in the same period last year. It warned this month that it expected to incur a big loss, citing an “unprecedented difficult period” for China’s real estate industry.

The company said revenue rose in the first half, but appears to admit that it has reduced real estate to maintain sales volume and ensure “smooth business operations”. Earlier, the company said contracted sales in July were down 60 percent from a year earlier.

Country Garden said in a statement that it was surprised by the “depth and persistence of the market’s downward trend.” It also said the company has invested disproportionately in real estate in smaller towns where the downturn has been most severe.

“All of these shortcomings have resulted in the most difficult difficulty the company has faced since its founding,” Country Garden said.

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Earlier on Wednesday, the company said it would raise $34 million by issuing new shares. Country Garden said it plans to issue 350.6 million shares at 77 Hong Kong cents per share next week. The proceeds will go to a subsidiary of Hong Kong-based Kingboard Holdings Limited, a materials and chemicals manufacturer with a real estate division that Country Garden owes money to.

Country Garden said it owes its subsidiary Kingboard Holdings about $200 million, which will be paid in installments, with the final payment due in December.

The new shares in Country Garden represent about 1.3 percent of the company’s existing shares. The company is selling the shares at a 15 percent discount to Tuesday’s closing price. Country Garden stock is down 67 percent this year.

Country Garden said last week it had reached an agreement to sell a 27 percent stake in a commercial and residential real estate development project in Guangzhou, southern China, for $177 million.

Country Garden, the largest home seller in China for the past six years, has been hailed as one of the lucky survivors in China’s turbulent real estate sector. It has avoided the liquidity crunch that gripped the industry after the government in 2020 limited the ability of developers to borrow money, in an attempt to prevent a property bubble. In the past three years, dozens of real estate developers have defaulted, including Evergrande, the now-bankrupt developer that once challenged Country Garden for industry supremacy.

But now Country Garden is the company striving to avoid going under. It missed two interest payments to international bondholders this month. The company has until next week to pay bondholders, otherwise it will default on its debts. It is also negotiating with creditors to defer repayment of a $350 million municipal bond, due later this week, until 2026.

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