(Bloomberg) -- Chinese developer Country Garden Holdings Co. has paid coupons on two dollar bonds within grace periods, avoiding its first default and bringing some respite amid a liquidity crisis that’s shaken the nation’s financial markets.

Among the most indebted property firms in the world, Country Garden told some holders of the notes about the payment, the creditors said, asking not to be identified discussing a private matter. The builder — helmed by one of China’s richest women Yang Huiyan — had to pay a combined $22.5 million in interest on the two bonds within a grace period ending Sept. 5-6, after missing an initial effective due date of Aug. 7.

The payments buy Country Garden time as it tries to sort through 1.36 trillion yuan ($187 billion) of liabilities, but the debt crisis facing the company and the wider property sector is far from over. Country Garden bonds still trade at deeply distressed levels around 9-14 cents on the dollar despite recent gains, suggesting investors anticipate an eventual restructuring or liquidation rather than a state rescue.

While China’s property market has shown tentative signs of recovery after government efforts to make homes more affordable, including relaxing mortgage rules in some of the biggest cities, a sharp rebound is unlikely given policymakers’ reluctance to back major stimulus. Investors are set to remain on edge as Country Garden and other top private peers not yet in default face more than $8 billion of bond payments over the next six months.

“Chinese property is a well known hot spot, and we don’t pick up pennies in front of steamrollers,” said Derek Tay, head of investments at Kamet Capital Partners Pte. “The structural issues plaguing the Chinese real estate sector need more than relaxation measures.”

Country Garden didn’t offer a comment when reached Tuesday.

The company, which has developments in almost every province in China, is the latest developer to be jolted by the crisis in the nation’s real estate industry. Its annual report shows that about 60% of its projects are located in so-called Tier 3 and Tier 4 cities, which usually have a smaller population and weaker housing demand.

“Country Garden can only turn around if home sales can turn around in Tier 3 and 4 cities,” said Eddie Chia, a portfolio manager at China Life Franklin Asset Management Co. “As of now it still trades like it has defaulted.”

The builder’s shares, which have traded as a penny stock in recent weeks, pared earlier losses after the news on the dollar interest to close down about 1%. A broader gauge of Chinese builders fell 2% decline. The firm’s other recent debt payments and extensions, along with policy support for the housing market, had lifted its shares Monday in their best day in weeks, but they still remain down about 62% this year.

“Country Garden could struggle to avoid a downward spiral in its liquidity even after it dodged a default,” Bloomberg Intelligence analysts Kristy Hung and Lisa Zhou wrote in a report. “The developer’s slump in contracted sales, down 72% in August, could persist amid faltering homebuyer confidence. About 92% of its land bank is in low-tier and weaker Tier-2 cities, where the latest policy stimulus is likely to deliver little boost to home sales.”

The builder’s importance to the broader economy stems from its sheer size, with more than 3,000 housing projects in smaller cities and about 70,000 employees. That had given it the firepower to withstand an industry cash crunch that led to record defaults since China Evergrande Group first missed bond payments in 2021. 

But an industry slump is threatening that streak. Any further worsening in the cash crunch at Country Garden, now China’s sixth-largest builder by contracted sales, risks worse fallout than from Evergrande given it has quadruple the property projects.

“Evergrande and Country Garden are both very large developers, so there’s a broadcast effect that impacts homebuyer confidence when they fall into distress,” Charles Chang at S&P Global Ratings said on Bloomberg Television earlier Tuesday. “Unfortunately, the damage is probably already done. The most important effect is homebuyers’ confidence being knocked down.”

Country Garden’s miss on the initial dollar interest deadline last month jolted markets, dragging Chinese junk dollar bonds to their lowest levels this year. The average price of the securities, most of which are issued by builders, around 67 cents adds to signs of broader distress amid record defaults. 

Country Garden has taken a series of steps recently to avert defaulting. The property giant wired a coupon payment in recent days that was coming due on a ringgit-denominated bond. It also won sufficient support in a vote that ended late Friday to stretch payments on a yuan note.

And the firm is now proposing to extend principal payments for eight other yuan bonds by three years, according to holders who said they were briefed by company advisers.

Most Chinese property developers facing liquidity issues are opting for the restructuring route, though liquidity remains tight for the majority of them, said Anitza Nip, head of fixed income research for Asia at Union Bancaire Privee. “We expect investors to closely monitor any signs of improvement in contracted sales in the last quarter,” she said.

More tests loom. Country Garden recently posted an unprecedented net loss of 48.9 billion yuan while attributable sales - a key source of developer funding - fell 35% through July. Meanwhile, it still faces more than $2 billion of potential note obligations for the rest of this year.

Below is a calendar of Country Garden bond principal and interest payments across currencies potentially due just in September:

 

--With assistance from Pearl Liu, Dorothy Ma, Charlotte Yang and Kevin Kingsbury.

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