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A Hong Kong-based creditor has filed a winding-up petition against struggling developer Country Garden, adding to a wave of legal action that threatens to increase liquidations across China’s property sector.
The petition, filed by a company called Ever Credit at Hong Kong’s High Court, cited non-payment of a HK$1.6bn (US$204mn) loan facility plus accrued interest, Country Garden disclosed on Wednesday in an exchange filing.
Country Garden, which until recently was the largest developer in mainland China by sales, refocused global attention on the country’s struggling property sector when it missed interest payments on offshore bonds last summer.
Its eventual default in October, two years after the 2021 collapse of its peer Evergrande, showed that developers thought to be among the country’s most resilient were still under severe pressure from a sector-wide cash crunch.
China’s property slowdown has become one of the biggest challenges facing the world’s second-largest economy and Xi Jinping’s administration, which has so far stopped short of providing overt stimulus despite mounting pressure to act. New home prices across major cities have fallen every month compared with the previous month since October.
Country Garden, which is still negotiating a restructuring agreement with international creditors, said it would “seek legal measures to resolutely oppose” the petition.
Ever Credit’s parent company, Kingboard Holdings, a chemicals manufacturer, did not immediately respond to a request for comment.
The winding-up petition could allow creditors to “extend pressure on Country Garden to speed up the restructuring process” and “achieve better terms by moving quickly”, said Lance Jiang, a partner in restructuring and insolvency at law firm Ashurst.
The petition echoes similar action brought against Evergrande by Top Shine Global in 2022. Last month, Hong Kong judge Linda Chan issued a liquidation order after the property group failed to produce a restructuring plan.
The move means Evergrande’s Hong Kong operations and holdings are set to be disbanded and opens the door to legal suits against international businesses involved in the company, such as former auditor PwC.
It has also raised questions over the territory’s legal reach into the mainland, where the vast majority of Evergrande’s assets are based. The company’s international bonds have lost almost all of their value.
With liabilities of about $200bn against $340bn for Evergrande, Country Garden is an important part of the country’s real estate sector, which typically accounts for more than a quarter of overall economic activity.
Hong Kong’s High Court has set May 17 as the date for the petition’s first hearing, according to the stock exchange filing. Country Garden added that it expected the petition “will not have a substantive impact” on its offshore restructuring plans or timetable.
Evergrande, which had about $20bn of offshore debt when it collapsed, originally planned to issue notes linked to subsidiaries listed in Hong Kong, but the plan fell through after the company indicated in September that it had not received regulatory approval.
In the same month, founder and chair Hui Ka Yan, formerly China’s richest man, was placed under what the company described as “mandatory measures” by authorities, without clarifying further.
Country Garden’s Hong Kong-listed stocks fell 11.1 per cent on Wednesday.
