Author | Anjou Cao

Editor | Zhou Zhiyu

China's largest private housing enterprise$COUNTRY GARDEN (02007.HK)$Once again, we have reached the crossroads of fate.

On August 8, interest on the two dollar bonds due by Country Garden on August 7 was unpaid, totaling about 22.5 million US dollars. Country Garden said in this regard that there is a 30-day grace period for interest payments. Currently, the company is still actively optimizing funding arrangements in an effort to protect the legitimate rights and interests of creditors.

This means that Country Garden has not actually breached its contract and will still have a chance to protect its credit for the next month.

After being attacked by bears last year and trying to protect their credit, this leading private housing enterprise is facing its most critical month.

Country Garden insiders, on the other hand, told Wall Street Insights that they are optimistic about the recovery in the market in August, and that the company will also take more action in the coming month to try to maintain the company's safe bottom line.

01. The general trend

The problems currently encountered by Country Garden have a strong industry background.

After the opening year of Xiaoyangchun, sales of housing enterprises continued to weaken, with a second bottoming out in July; the financing side of private housing enterprises showed signs of breaking the ice after freezing for two months, but the amount of private housing enterprises that received support was still few.

According to data from Kerry, this past July was the coldest month for the property market in recent years. Both private housing enterprises and central state-owned enterprises generally saw a sharp decline in sales volume. According to Kerry's monitoring, the transaction area of new housing in the 30 key cities in July was 1.04 million square meters, a new low for the same period in the past five years, down 33% month-on-month and 37% year-on-year. Since the volume was released in March, there have been “four consecutive declines.”

The continued slump in sales and refinancing conditions, as well as the impact of capital regulation, put pressure on the liquidity of most housing enterprises. Country Garden is no exception.

Country Garden's financial report shows that by the end of last year, its usable cash was 147.55 billion yuan, of which pre-sale supervision capital was at the level of 60 billion yuan. After continuing to be trustworthy and to pay the bonds on time or even in advance, the amount of funds available on Country Garden's books continued to decline.

The decline in sales performance over the past two months has exacerbated this situation. In July of this year, Country Garden's equity sales amount was about 12.07 billion yuan, down 59.92% from the previous year. However, with equity sales of 138.75 billion yuan, it ranked 5th among housing enterprises.

Investors and financiers familiar with Country Garden said that under such circumstances, Country Garden has been trying to expand financing channels.

With institutional support, Country Garden received HK$3,583 million and US$389 million in dual currency term loan financing for refinancing on July 20.

Subsequently, Country Garden included allotment of shares and financing in the list. On August 1, some institutions received Country Garden's issuance documents. Country Garden plans to place 1.8 billion shares and raise about HK$2.34 billion. However, Country Garden later announced that no final agreement has been signed on the allotment deal, and Country Garden will not consider allocating shares in the near future.

People close to Country Garden said that Country Garden has indeed put allotment of shares on the agenda and has consulted a number of institutions. However, the parties did not agree on the timing of the allotment of shares, and the plan was put on hold for the time being.

Country Garden has also been working hard to protect its credit. The first was an early remittance of funds on July 27 to pay off the RMB bonds due on August 1, “19 BITI 02,” which had a survival size of about RMB 2.2 billion; then, on August 7, Country Garden paid the principal and interest of the “20 BC 02,” which had not been resold. The remaining principal and interest of the bond was originally due to expire on August 10.

As a result, many investors still have confidence in Country Garden in the face of the industry's downturn and bottoming out. Recently, a series of rumors about Country Garden have continued to circulate in the market, and Country Garden will also promptly refute and explain related rumors in order to reduce the impact of these rumors. However, in the end, Country Garden still faced phased liquidity pressure.

02. Turning point

Since this year, even state-owned enterprises and state-owned enterprises have had to face the slump of the past two months after experiencing optimism at the beginning of the year, such as CNOOC and China Resources. The depth and magnitude of this round of market adjustments is beyond the imagination of many housing enterprise bosses.

Country Garden is still insisting on solving the problem. At an internal meeting in early July, Country Garden management emphasized that persistence is victory, focuses on ensuring corporate safety, continues to make every effort to complete the political task of “securing buildings,” and carried out their original mission in the industry exam.

Maintaining corporate credit is the proper meaning of the question of safeguarding corporate security.

There are also institutional sources that believe that the current attitude of investors on debt rollover is not as rigid as before, and that they are willing to support housing enterprises that can hold on until now even if they provide good rollover conditions. From a corporate perspective, Country Garden has done a good job.

Bai Wenxi, chief economist at IPG China, believes that Country Garden's asset status and financial position are superior to many real estate companies, and that there is an opportunity for a turning point.

Recently, the real estate policy has shown significant advantages. After the Ministry of Housing and Construction spoke out, the relevant departments in the four first-tier cities of North, Shanghai, Guangzhou, and Shenzhen all stated that they would support residents' housing needs; on August 3, Zhengzhou also launched the first round of policies to optimize the property market, implementing a “house claim no loan,” and suspended sales restrictions, and cities such as Nanjing soon followed suit.

After experiencing the cold of July, the market gradually became warm. Statistics from agencies including the Kerry Research Center show that last week (July 31 to August 6) focused on monitoring the low consolidation of urban property markets. Cities including Zhengzhou and Nanjing showed a boost in new and second-hand housing transactions after issuing “stabilizing the property market” policy. Among them, new homes in Nanjing and Changsha both rose more than 40% month-on-month.

andWith the arrival of “Golden Nine Silver Ten,” Wall Street News learned from many housing companies that their marketing plans for the next few months will also be more active than in the first half of the year. On both the supply and demand sides, the property market is expected to pick up gradually, boosting market confidence.

Zhu Jin of CITIC Construction Investment Securities Real Estate believes that with the continued implementation of policies, sales and financing conditions in July should be viewed as the bottom of this year, and there will be improvements in the future.

Ding Zuyu, CEO of Yiju Group, expects that a relaxed real estate support policy is being prepared. More core Tier 1 and 2 cities will join the untied and adjusted teams and become the main force in the loosening of ties. Supply expectations will pick up somewhat next August, which will drive transactions to stop falling.

Wang Shi, founder of Vanke Group, also saw the grief and persistence of private enterprises. He recently stated that China's real estate is currently in a period of adjustment and will face many challenges, including liquidity issues. However, China has a huge market, and at the same time, with the introduction of relevant policies, I believe the challenges can be overcome.

In the next month, market confidence will pick up, the financing side will receive more support, etc. These external conditions will determine whether Country Garden, the “survivor” of the leading private housing enterprise in the past two years of market adjustments, can perform another miracle.

Some investors said bluntly that if Country Garden gets through difficult times, it will undoubtedly greatly boost confidence for enterprises and the market. Confidence, on the other hand, is also the key to getting housing enterprises out of the slump and stabilizing and recovering the general economic environment.