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Country Garden liquidation petition deepens China’s property crisis

China’s troubled property developer Country Garden Holdings disclosed on Wednesday it received a liquidation petition filed by one of its creditors, a further sign of the deepening real estate crisis in mainland China.

In a regulatory filing in Hong Kong, the company said a “winding-up” petition was filed by Ever Credit Limited at the High Court on Tuesday, involving a non-payment for a loan including interest of HK$1.6 billion (US$204.4 million).

Country Garden said it will “oppose the petition vigorously”, seeking legal advice and taking necessary actions to protect its interests. A court hearing is set for May 17.

The petition comes a month after the Hong Kong High Court issued a liquidation order against another Chinese property giant Evergrande Group as its restructuring plan lacked progress and the company was insolvent after failing to repay more than US$300 billion in liabilities.

The debt woes of two of China’s biggest real estate companies not only underscores the scale of the industry crisis and the spillover effects to related sectors like banks, but also the fix that policy-makers are in – with no apparent solution.

The rapid demise of China’s property market began when the biggest developers like Evergrande and Country Garden sparked off a series of defaults after years of overleveraged and bad investments, weighing on the banking system. It has also piled on debts for local authorities which relied on land sales to fund infrastructure development and governmental operations.

In an apparent stop-gap measure, Beijing is pushing banks to support its “white list” of approved projects. As of Feb. 20, 162 projects across 57 cities have been granted a total of 29.4 billion yuan in loans, compared to 11.3 billion yuan before the Lunar New Year holidays, China’s official Xinhua news agency reported, citing the state-owned Economic Daily.

The efforts haven’t completely stopped prices from falling, which weighs on the suffering of millions of homeowners who are burdened with mortgages and the pressure of monthly payments as the economy stutters. If the properties were bought at a high price which since has plunged beyond the purchase level, monthly payments would be more painful.

Country Garden said the petition “will not have a substantive impact on the offshore restructuring process or timetable.”

Edited by Mike Firn.