Commentary: China property giant Country Garden’s woes – the good, the bad and the very ugly

But does billionaire businesswoman Yang Huiyan, who held a 52.6 per cent stake as of the end of July, still have faith in Country Garden’s turnaround, despite a history of funding support? Her outsize ownership can materially change the builder’s financial policy and its attitude toward bond holders. 

In China, capital-intensive real estate development is long past its prime, while property management and services are the future. Indeed, in the first half, Country Garden Services Holdings Co is expected to report up to 2.6 billion yuan in net profit, while the troubled development unit may see up to 55 billion yuan in net loss.

To figure out whether the distressed tycoons are willing to negotiate on debt, it’s important to look at the relationship between their business divisions. 

END OF THE ROAD

Call me hard-nosed, but Yang may no longer care. Country Garden and Country Garden Services are sister companies, both ultimately controlled by Yang.

In late July, the 41-year-old gave about 55 per cent of her personal stake in the property management unit to a charity founded by her sibling, while keeping the voting rights. The charity will hold the shares for 10 years. 

This corporate structure is in stark contrast to, say, Sun Hongbin’s empire. Sunac Services Holdings is controlled by the development unit, Sunac China Holdings. As such, the billionaire has a financial incentive to restructure Sunac China and even offer sweeteners. 

Whatever happens to Country Garden, most investors can agree on one thing: For two years, the builder has tried hard to honour its obligations even as others became delinquent amid the government’s harsh regulatory crackdowns. Country Garden is just at the end of the road.