(Yicai) Aug. 11 -- Shares in Country Garden Holdings plunged as much as 14.4 percent today after a source from a research institution said that the struggling Chinese property developer might begin debt renegotiations soon.

Country Garden’s share price [HKG:2007] was trading down 7.6 percent at HKD0.96 (USD0.12) as of 1.45 p.m. China time today. Earlier in the day it sank to HKD0.89.

Country Garden has hired China International Capital as its financial advisor to lead the restructuring, the source told Yicai Global.

Country Garden is in the midst of a liquidity crisis and earlier this week defaulted on the interest payments of two US dollar bonds. There have also been rumors that a local government team had been sent to the company’s headquarters to ask for a list of marketable assets, but Country Garden later refuted the rumors.

However the developer has admitted that it is in trouble. Country Garden is encountering the biggest difficulties since its establishment, the Foshan, southern Guangdong province-based firm said yesterday. It is bracing for net losses of between CNY45 billion (USD6.2 billion) and CNY55 billion in the first half, it added.

Country Garden underestimated the depth, intensity and length of the market downturn, it said. It had insufficient insight into the significant shifts in supply and demand in the real estate market. It did not have a full understanding of potential risks such as excessive investment in small cities and its actions to reduce its debt ratio and other mitigating measures were not quick enough and ineffective.

China’s real estate market has been sluggish since 2021 and the financing environment has worsened. This, combined with tighter regulation, has caused Country Garden to have less available funds and to come under cash flow pressure, a company insider said earlier.

The developer has managed to reduce its debts by nearly CNY100 billion (USD13.8 billion) since 2020, but it still has over CNY10 billion of debt due from next month to early 2024.

Country Garden is likely to get through this difficult time by re-organizing its debt, given its good financial fundamentals and low leverage levels, a source close to the developer said.

Editor: Kim Taylor