- Pari Passu
- Posts
- Country Garden Holdings's Downward Spiral
Country Garden Holdings's Downward Spiral
Covering what was once China's largest homebuilder and analyzing how it has fueled China's real estate crisis
Welcome to the 62nd Pari Passu newsletter.
Today, we are learning more about Country Garden Holdings Co., once China’s largest homebuilder, as a way to better understand the recent developments in China. Despite the controversial nature of the country, everyone should be interested in learning about a nation that accounts for 18% of global GDP and 31% of global manufacturing. Let’s dive in.
Country Garden’s Distress: A Symptom of China’s Property Crisis
Country Garden Holdings Co., once China’s largest homebuilder, is facing its first-ever default on a dollar bond, highlighting the company’s financial distress amid a worsening real estate crisis in the world’s second-largest economy. The default could have far-reaching implications for China’s property sector, its financial system, and its economic growth. In this article, we will examine the background and causes of Country Garden’s distress, the current state of China’s real estate crisis, the potential consequences of a collapse, and the possible policy responses from the Chinese government.
Country Garden Background
Country Garden was founded in 1992 by Yeung Kwok Keung, a former farmer who became one of China’s richest men. The company grew rapidly by focusing on developing large-scale residential projects in lower-tier cities and rural areas, catering to the demand from China’s urbanization and middle-class expansion. Country Garden also expanded overseas, investing in projects in Malaysia, Australia, Indonesia, and other countries.
The company was listed on the Hong Kong Stock Exchange in 2007, raising $1.7bn in its initial public offering. Its market capitalization peaked at $60bn in 2018, making it the largest property developer in China by value. Its chairman and CEO is Yeung Huiyan, the daughter of the founder and one of China’s richest women.
However, Country Garden’s success came at a high cost. The company relied heavily on debt financing to fund its aggressive expansion, accumulating $190bn in total liabilities as of October 2023 [1]. Its debt-to-equity ratio was 4.6x as of FY’22, well above the industry average of approximately 0.9x. Its interest expenses exceeded its operating income, making it vulnerable to any shocks in cash flow or market conditions.
China’s Real Estate Crisis
Subscribe to Pari Passu Premium to read the rest.
Become a paying subscriber of Pari Passu Premium to get access to this post and other subscriber-only content.
Already a paying subscriber? Sign In.
A subscription gets you:
- • Get Full Access to Over 150,000 Words of Content
- • Institutional Level Coverage of Restructuring Deals