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One of China’s biggest property developers has abruptly abandoned a share placement, sending its stock down as much as 10 per cent on Tuesday and renewing concerns about the troubled real estate sector.
Country Garden, one of the country’s largest developers and a barometer of the sector’s health, decided to cancel a $300mn share placement on Monday night, two people briefed on the situation said. A successful placement would have been a rare new capital markets deal in a sector starved of investment. JPMorgan was the sole bookrunner.
“Due to inconsistency in communications with various parties, the company hasn’t managed to sign off the final agreement on a proposed [share placement] plan,” Country Garden said in a statement sent to the Financial Times on Tuesday. “The company is also not considering the deal at the current stage.”
The cancellation is a blow for an industry whose poor performance remains one of Chinese policymakers’ biggest challenges almost two years after developer Evergrande defaulted and sparked a cash crunch. Country Garden is one of the few prominent private developers to avoid default, posting a Rmb2bn ($280mn) profit in the first half of last year.
But it has lost almost half of its stock market value this year, and on Monday the group issued a profit warning for the first half of 2023, citing “impairments for property projects” amid the “downward trend of real estate sales”. The company said it would reduce expenses and “actively seek guidance and support from the government and regulatory authorities”.
In its statement on Tuesday, the developer added that it was closely looking for opportunities to expand its fundraising channels amid market uncertainties and lukewarm property sales. Country Garden said it was “actively working with intermediary agencies on fundraising plans”.
Beijing has stopped short of providing a major bailout for the property sector since the crisis erupted two years ago. It has instead encouraged “high-quality” developers to return to markets.
Ruiying He, a credit analyst at Lucror Analytics, noted that Country Garden had Rmb12.4bn of bonds maturing this year in the Chinese mainland, as well as $1bn of bonds coming due in January.
“The cancelled share sale may raise questions about investor appetite towards the company, as well as the controlling shareholder’s ability and willingness to support it,” she said.
Country Garden has come under pressure in stock markets in recent weeks amid concerns over a potential default from well-known property conglomerate Dalian Wanda, which last week averted default on a bond after completing a last-minute asset sale.
Other developers, including state-owned Greenland, have also been the subject of volatile trading amid growing doubts about the wider sector’s health.
Data released on Tuesday by China Real Estate Information showed sales from China’s top 100 developers fell 33 per cent year on year to Rmb350bn in July.
Poor economic data has added to pressure on Xi Jinping’s government to inject further stimulus. Property investment fell 7.9 per cent year on year in the first half of 2023, while metrics from retail sales to exports have disappointed expectations.
JPMorgan declined to comment.
Additional reporting by William Langley in Hong Kong