Country Garden (HKG: 2007) (OTCPK: CTRYF) shares are up near 15% in Hong Kong today. We have no specific news - perhaps the payment on a ringgit bond but not much more than that - so must ascribe this to a turn in sentiment over the weekend. For the general assumption in the markets is that we’re not looking at whether Country Garden is going to go bust. Rather, it’s how it’s going to go bust. Now, it is possible that it won’t at all but that isn’t, as we say, the general assumption. That debt load in a property market that is both falling in value and also slowing in transaction numbers? Well, as so many have noted, that depends upon what the government does.
We’ve talked before of Country Garden: “Today we got our answer about what the CCP is going to do about China real estate: “Key tasks for the second half of this year are expanding domestic demand, improving confidence and preventing risks, it said. The move to shore up the property sector – which used to be a major engine for economic growth but has lately been a source of financial risk and social instability – is part of the Chinese leadership's broader efforts to invigorate confidence, as getting people to spend and invest is crucial for the economic growth.” and “Ding Shuang, chief Greater China economist at Standard Chartered Bank, said more property policies could also be introduced, moving forward. “This may lead to a smooth landing of the real estate sector, rather than a big rebound, and a smooth landing is already a good result,” Ding said.”
Well, maybe.
Country Garden share price from Google Finance
There is the alternative view as well, as we’ve also said about Country Garden: “2007 shares dropped as a a result of fairly doom laden news released over the weekend - that certain bonds would be suspended from trading. The important point here is that these are domestic bonds. If we were to be unkind about the Chinese financial markets we’d suggest that foreigners losing money is not something that anyone internally worries about very much. But people within the country, on the Mainlaind? That then becomes a more important problem. So, there were a couple of missed coupon payments on international dollar bonds last week. That’s something that might be regarded as regrettable but not wholly important.”
If we look at Country purely as a stand alone company then we see someone on that pathway to bankruptcy. Debts to assets, cashflow to service the debt burden, no, one one can really see a way out of this. If we think of Garden as a political player, or at least the subject of political forces, then things might look a little rosier. Is China going to allow the Mainland property development sector to fail overall? Or are macroeconomic conditions going to be changed so that it doesn’t?
The Country Garden share price varies dependent upon which view comes out on top in any particular trading day.
