Country Garden defaults on a dollar bond for the first time

Debt-crippled Chinese property developer Country Garden Holdings has defaulted on a dollar bond for the first time. The default has raised concerns about the “real estate debt crisis” rocking the world’s second-largest economy.

“Country Garden’s failure to pay interest on the note during the grace period that ended last week constitutes an event of default,” said a notice to noteholders from administrator Citicorp International, seen by Bloomberg News.

This means that the trustee must immediately declare the principal and interest due if requested by holders of at least 25 percent of the total principal amount of outstanding notes. For now, there are no signs that creditors have made such a request yet.

IT MAY BE THE LARGEST RECONSTRUCTION IN THE COUNTRY’S HISTORY

The default became official after Country Garden said in a statement last week that it did not expect to meet all of its overseas payment obligations on time. The company is now heading into what is arguably one of the largest restructurings ever undertaken in the country.

The real estate market, which includes the construction company run by Yang Huiyan, one of China’s richest women, accounts for about 20 percent of gross domestic product. This is an indication that a possible real estate debt crisis is important for the country’s economy.