By Xie Yu and Clare Jim
HONG KONG (Reuters) -China's Country Garden (HK:2007) submitted the preliminary terms of an offshore debt restructuring proposal to some creditors late last month, said five sources familiar with the matter, as the struggling property developer tries to avoid liquidation.
The proposal includes a revised cash flow projection, said two of the sources who have direct knowledge and another person familiar with the matter, a standard part of a debt restructuring process to show to creditors the firm's ability to meet its obligations.
The projection shows the developer expects a weaker cash flow in coming years compared with the estimates it had shared with some offshore creditors earlier this year, two of the sources said.
Details of the cash flow projection were not immediately known.
A spokesperson for Country Garden did not respond to Reuters request for comment.
The sources declined to be identified as they were not authorised to speak to the media.
Once China's biggest developer, Country Garden defaulted on its $11 billion in offshore bonds late last year and is fighting a liquidation petition in Hong Kong. The next court hearing has been set for Jan 20, 2025.
Country Garden's downward revision of the cash flow outlook comes after the government rolled out a raft of measures over the past year to revive the property sector, which has slumped in recent years as developers succumbed to a mountain of debt.
China's new home prices fell the most year-on-year in October since 2015, while property investment declined 10.3% in the first 10 months of 2024, official data showed on Friday, suggesting the support measures have had little impact so far.
The finance ministry last week introduced new tax incentives to further lower the cost of home purchases and spur demand -- its latest support effort. China also cut benchmark lending rates by 25 basis points in October to try to boost demand.
At a hearing in July, Country Garden told the Hong Kong High Court that it expected to publish the term sheets for a revamp of its offshore debt to creditors in September and that it planned to seek approval from the court on that arrangement early next year. The company missed the September deadline.
RESTRUCTURING FRAMEWORK
If Country Garden can gain support from its key creditors for the restructuring proposal before the January court hearing, it would pave the way for the company to seek more time from the court to implement a restructuring plan.
PJT Partners (NYSE:PJT), a financial adviser representing the main group of Country Garden's offshore bondholders for the debt restructuring talks, declined to comment.
Ever Credit Limited, a unit of Hong Kong-listed Kingboard Holdings, filed the liquidation petition against Country Garden in February for non-payment of a $205 million loan.
Country Garden and some of its offshore creditors have in recent weeks actively discussed a restructuring framework that covers potential haircuts that the bondholders will have to take and a debt-to-equity swap, according to one of the sources.
Its shares have been suspended from trading since April pending the release of 2023 full-year and 2024 interim results. In an exchange filing this month, Country Garden said contracted sales for October fell 31% to around 4.33 billion yuan ($598 million).
Many Chinese property developers have defaulted since the sector slipped into a debt crisis in mid-2021, resulting in millions of uncompleted homes across the country.
Some are facing liquidation lawsuits filed by creditors, with the latest being state-backed Sino-Ocean Group. A handful, including sector giant China Evergrande (HK:3333) Group, have been ordered to be liquidated so far.
($1 = 7.2363 Chinese yuan renminbi)