The source said Country Garden is paying down the debt as a relief to China’s property sector

HONG KONG, Sept 5 (Reuters) – Country Garden ( 2007.HK ) paid interest on two U.S. dollar bonds as the grace period expired on Tuesday, a person close to the company said in relief. Troubled developer and crisis-hit Chinese property sector.

China’s largest private property developer failed to pay coupons on a total of $22.5 million in bonds due on Aug. 6, raising fears about the developer’s cash position and keeping markets on tenterhooks throughout their 30-day grace period.

While the sum is relatively modest, a default could undermine fragile confidence in financial markets as China’s steady drip-feed of policy stimulus begins to stabilize the struggling property market and broader economy.

That would have raised demands from defaulters and other holders of dollar bonds to speed up payments, bondholders and lawyers said.

Country Garden did not immediately respond to a request for comment. A person close to the company declined to be identified because he was not authorized to speak to the media.

The developer’s share price fell roughly 3% on Tuesday, reflecting little change after Reuters reported the payment.

The Hang Seng Mainland Properties Index (.HSMPI) and China’s CSI 300 Real Estate Index (.CSI000952) each lost more than 2%. Some investors profited from previous sessions’ gains.

Tuesday’s development comes after Country Garden received approval from overseas creditors on Friday to extend a private bond worth 3.9 billion yuan ($536 million).

Country Garden never defaulted on debt or offshore until it defaulted on coupons on two dollar bonds last month, dampening demand for new homes that translated into tight liquidity.

With the payments due on Tuesday, Country Garden owes about $162 million in offshore bond interest for the rest of the year, data from researcher CreditSites shows.

Country Garden’s predicament highlights the fragile state of China’s real estate sector, which accounts for a quarter of the world’s second-largest economy and whose situation has worsened since the start of a government campaign against high foreign exchange in 2021.

Making matters worse is the post-pandemic economic recovery.

Services activity expanded at the slowest pace in eight months in August, a private sector survey showed on Tuesday, as weak demand continued to weigh on the economy and stimulus measures failed to meaningfully revive consumption.

Recent incentives include lower existing mortgage rates and preferential loans for first home buyers in major cities.

“There are still concerns about the weakness of the real estate sector as domestic demand remains weak and house prices fall, particularly in smaller Chinese cities,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown in the UK.

“Stimulus efforts to boost mortgage lending are welcome, but a much larger level of support may be needed to restore more confidence in the sector and put exposed asset firms on a firmer footing.”

Our Standards: Thomson Reuters Trust Principles.