Long before rescue talks, Country Garden struggled to build homes, pay bills

FILE PHOTO: The company logo of Chinese developer Country Garden is pictured at the Shanghai Country Garden Center in Shanghai · Reuters

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BEIJING/HONG KONG (Reuters) - When China's largest developer Country Garden first skipped debt payments in August, its shares tumbled 14%, marking a reversal of fortunes: from industry poster child to another troubled property company struggling to pay its creditors.

The same month, Chinese authorities quietly started talks with Ping An asking the insurance group to take a controlling stake in the developer, according to a Reuters report that was denied by Ping An.

Interviews with contractors, workers and home buyers, as well as a review of lawsuits involving Country Garden, show that for months before its problems became public, the company was struggling to deliver homes and pay contractors on time.

Until the middle of this year, the company was seen by most investors and home buyers as a beacon of strength in a real estate sector grappling with ballooning debt, tighter regulations and slumping sales. It was one of the few developers able to issue state-guaranteed onshore bonds last year and get credit lines from banks in early 2023.

China, the world's second-largest economy, has struggled to recover from COVID shutdowns and issues with its giant property sector. Country Garden's woes highlight the challenge Beijing faces as it seeks to engineer a rescue plan for the company and improve conditions for the wider industry.

"Nobody believed that Country Garden would fail. One important reason is that it seemed to have the implicit guarantee from the state," the Economist Intelligence Unit's Xu Tianchen told Reuters.

Observers believed Country Garden, which has liabilities of around $190 billion and more than 3,000 projects under development, was "good enough and big enough to escape a default or a collapse," he added.

Examples of Country Garden's earlier financial strains, reported here for the first time, include: A valve supplier unpaid since 2022; a steel provider partially paid with apartments; homeowners and workers reporting projects stalled from as early as January; and a Country Garden subsidiary which told a court earlier this year it was "insolvent and overwhelmed."

Lawsuits involving Country Garden and its contractors, including disputes over delayed construction and missing payments, have jumped to a record 459 cases this year, according to data compiled by EIU’s Xu.

Country Garden declined to comment.

After its default, Country Garden has stressed that delivery of homes will remain its top priority, saying last week it had delivered around 460,000 units in the first 10 months of 2023.