More woes for China’s property creditors: Country Garden faces winding-up petition

​​​Following Evergrande’s recent Hong Kong liquidation order is Country Garden next?

​Country Garden, once China's largest real estate developer, is facing a winding up petition filed by creditor Ever Credit in the Hong Kong High Court. The petition seeks to liquidate Country Garden's assets to repay a $204 million loan plus interest. This follows a similar liquidation order against the formerly largest developer China Evergrande last month, signalling continued distress in China's property sector.

​Country Garden says it will fight the petition vigorously, with a first hearing scheduled for 17 May. The property behemoth’s shares fell over 12% on the news amid great investor concern. After all more than 50 Chinese property developers have defaulted on their debts since 2021 and around 20 million presold but unfinished homes await completion in China.

​Creditors face major obstacles recovering loans through Hong Kong courts as most developer assets are in mainland China. Even if mainland courts order asset sales, strict currency controls could prevent funds from leaving China.

​The petition compounds Country Garden's financial troubles which began in October 2022 when it essentially ran out of money to repay its debts. As housing prices slid, homebuyers pulled back on purchases, leaving Country Garden and other developers without sales revenue to complete millions of presold but unfinished units. Country Garden's presales plunged 74% in the second half of 2022. Preliminary data showed that industry sales fell a further 40% this Lunar New Year compared to the same holiday last year.

​Country Garden says the petition won't significantly impact its normal operations, building completions, or overseas debt restructuring. But the action will likely cloud restructuring efforts underway since October with advisers KPMG and Sidley Austin. Country Garden has already missed a $15 million bond payment, sparking the formation of ad hoc creditor groups. Apparently Country Garden wasted time switching advisers, unsurprisingly testing creditor patience.

​The petition highlights the lingering crisis in China's property industry, which Beijing is trying to boost confidence in as it accounts for as much as 20% of the country’s gross domestic product (GDP).

​Analysts think untanglimg Evergrande's $300 billion debts after last month’s court-ordered liquidation could take over a decade. Country Garden's restructuring outlook is now also dimmed by a liquidation threat, exacerbating market uncertainty in the sector.

​Technical Analysis on the Country Garden share price

​The Hong Kong Stock Exchange listed Country Garden share price has come off its lofty early 2018 $19.16 peak in a long-term bear market close to its January 2024 record low at $0.61.

​Including Wednesday’s 12.5% drop, the Country Garden share price has fallen by 18% since the beginning of the year.

​Country Garden Monthly Chart

​The Country Garden share price is trading within a whisker of its January and current February $0.61 lows which have been defended rigorously over six trading days over the past few weeks.

​Were this support level to give way, the minor psychological $0.50 mark would be next in line.

​Country Garden Daily Chart

​The immediate downtrend will remain valid while no – unexpected – bullish reversal takes the Country Garden share price back above its late-January and current February highs at $0.75 to $0.76.