Another real estate company on the brink following Evergrande's footsteps?

In recent years, the real estate industry has begun to enter a slump. Just one month ago, Evergrande Group, a leading enterprise in the domestic real estate industry, was officially issued a liquidation order by Hong Kong authorities, causing the stock market to plummet more than 20%. On February 28th, another real estate giant, Country Garden, was also presented with a liquidation petition.

Compared to Evergrande, Country Garden is in a slightly better situation. Evergrande has already been officially issued a liquidation order, while Country Garden has only been presented with a liquidation petition, with a grace period still available. However, if the situation cannot be turned around during this period, what happened to Evergrande could very well be Country Garden's tomorrow.

Country Garden's attitude towards this liquidation petition has been quite clear, explicitly opposing the liquidation and expressing that they will actively negotiate with the other party to try their best to avoid liquidation. For both investors and Country Garden, liquidation is the worst outcome.

In the response announcement, Country Garden's words were very strong:

"The company will vigorously oppose the petition," "the presentation of the petition does not mean the petitioner can successfully liquidate the company," "the company will seek legal advice and take all necessary actions to protect its legitimate rights. In addition, the company will seek legal measures to firmly oppose the petition, as the board believes the petition does not represent the interests of other stakeholders and may damage the value of the company."

Of course, mere opposition cannot solve the problem. At the end of the announcement, Country Garden also made a statement, expressing their willingness to communicate and negotiate with the other party to resolve the issue amicably.
A key factor here is whether it is possible to have the petitioner withdraw the request quickly, or for Country Garden to directly reject the petition, the faster this step is completed, the quicker market confidence can be restored.

So, who is the other party that has pushed Country Garden into the spotlight this time?

The party requesting the liquidation is Kingboard Chemical Holdings, a leading domestic enterprise in the copper-clad laminate industry, covering multiple areas such as printed circuit boards, chemical products, and real estate, with its chairman Zhang Guorong being known as the "Copper Foil King", a figure not to be taken lightly.

The cross-industry dispute originated in December 2021, when Kingboard's subsidiary, Forever Credit Limited, loaned HK$1.88 billion to Country Garden. In some areas, you may see Forever Credit Limited mentioned, while in others, Kingboard - these two are essentially the same entity.

On August 30th last year, Country Garden offset a debt of HK$270 million by issuing new shares, which accounts for part of the HK$1.6 billion loan, in addition to its principal and corresponding interest charges.

On February 19th this year, Kingboard Chemical issued a "profit warning", explicitly stating that this loan was one of the main factors in the decrease of the company's net profit for 2023. The stock price fell the following day, and after making the dispute public on February 28, the stock price dropped significantly again.

After Country Garden issued their response, Kingboard Chemical did not reply, as neither side wishes to fully escalate the dispute to court proceedings, which would be disadvantageous for all stakeholders involved. If the issue could be resolved through negotiations, it would undoubtedly be the best outcome.

The domestic real estate industry is currently in a significant downturn, with many large property developers caught in various degrees of turmoil. Although they have all made "house delivery" promises, these promises ensure the delivery of houses, not the survival of the companies themselves. For instance, Evergrande also made a house delivery promise, but its liquidation will proceed after house delivery, hoping to use this to delay or avoid penalties is wishful thinking.

For users who already hold or are planning to hold related assets, the pressing issue is to carefully consider their risk resistance and long-term holding capabilities. If, after evaluation, one feels unable to bear the loss, it might be wise to consider exiting early to reduce losses.