Country Garden is raising funds to avoid default, as the troubled real estate giant battles a liquidity crisis which some fear could spread to China's wider economy and even spill over abroad.
The Foshan, Guandong-based company said Wednesday that it plans to issue 350 million shares at HK$0.77 ($0.10) apiece to pay off loans it owes to a creditor, according to a stock exchange filing. The total value of the shares would be $270 million ($34.4 million.)
Country Garden won't receive any cash from the transaction, the filing said. Instead, the stocks will be used to set off the money it needs to repay Kingboard Holdings, a manufacturer of laminates based in Hong Kong.
The move marks a fresh effort by the real estate firm, which was the largest residential property developer in China last year, to avoid default as it scrambles to raise cash and reassure its investors.
On Monday, the company said its $100 billion project in Malaysia, its largest overseas development, was "operating normally," adding that its operation in the region was "safe and stable." The announcement, along with China's latest policy measures to support the property sector, gave a brief lift to Country Garden's shares in Hong Kong.
Last week, the company moved a deadline from August 25 to August 31 for bondholders to vote on a plan to extend payment on a 3.9 billion yuan ($530 million) bond.
Country Garden is slated to report its first-half earnings later on Wednesday. Investors are closely watching the report for details about the company's cash flows and how it may cope with its debt problem.
Country Garden's financial troubles have been in focus this month as it faces a cash crunch. Investors worry that a debt default by the company could deal a further blow to already fragile investor confidence as Beijing tries to rescue the ailing sector, which is key to China's economic growth.
Earlier this month, reports of the company missing payments on two dollar bonds shocked the market, as the company had been considered the largest surviving developer in the crisis-hit industry.
On August 10, Country Garden acknowledged that it was facing the "biggest difficulty" since its establishment in 1992, citing deteriorating sales and a difficult refinancing environment. It forecast a loss of $6.2 billion to $7.6 billion for the first six months of this year.
The news triggered a sell-off in the company's securities, forcing it briefly to suspend trading in 11 of its onshore bonds. Chinese state media reported at the time that the developer was expected to start a debt restructuring soon.
