0148.HK 2007.HK
Kingboard's failure to collect a debt in mainland China

The laminates maker’s failure to collect a massive debt owed by Country Garden is raising concerns that many more listed companies may have similar exposure

Key Takeaways:

  • Kingboard said it has yet to collect 1.6 billion yuan it is owed by struggling developer Country Garden 
  • The Hong Kong-based laminates maker said it sees little chance of collecting the debt, and expects to make a provision for it


By Lau Chi Hang

Struggling developers and their bond holders have taken much of the spotlight in China’s unfolding property crisis, which threatens to leave the latter group holding billions of dollars in unpaid debt. But less visible are other lenders that also stand to lose billions, many of them corporations that once saw China’s booming property market as a surefire bet. 

One such company with hundreds of millions of dollars on the line is Kingboard Holdings Ltd. (0148.HK), which earlier this month disclosed that Country Garden (2007.HK) missed recent repayments due on loans made by one of its subsidiaries. That announcement finally awakened investors to the reality that the financial risk presented by defaulting real estate companies could spread well beyond the traditional banking and bond sectors. 

Kingboard lent Country Garden HK$1.88 billion ($240 million) in December 2021, charging an 8.5% annual interest rate to be paid in installments over two years. In August, Country Garden issued new shares to Kingboard in lieu of cash repayments to cover about HK$319 million worth of principal plus interest due, giving Kingboard 1.25% of Country Garden’s shares. 

The rest of the money was set for repayment by the end of this year, but Kingboard said it has yet to receive any funds and expects to make provisions for them. This comes a week after Country Garden officially defaulted for the first time on its offshore debt after missing an interest payment.

Savvy investor

Kingboard has earned its stripes as a savvy investor over the years, even if it’s not a household name. The company was once the third-largest shareholder in Hong Kong flagship carrier Cathay Pacific Airways (0293.HK), and has been the world’s largest producer of copper-clad panels for the past 18 years. Its chairman is also a member of prestigious National Committee of the Chinese People’s Political Consultative Conference (CPPCC), one of the main consultants to China’s legislature.

Founded by Cheung Kwok Wing in 1988, Kingboard began as a maker of copper-clad panels in the Southern boomtown of Shenzhen across the border from Hong Kong. The company listed on the Hong Kong Stock Exchange in 1993 and later worked with state-owned oil exploration giant CNOOC to develop a methanol plant in 2006. That same year, it spun-off its Kingboard Laminates (1888.HK) unit for a separate listing.

Cheung’s status as a local business legend owes largely to his purchases of Cathay Pacific shares through his two listed companies that gave him 9.61% of the airline’s stock at one time. Then, just as speculation was growing over Cheung’s intent with the purchases, he sold his shares to Qatar Airways in 2017, pocketing a nearly 30% profit in the process.

Cheung’s investing instincts aren’t working out quite as well this time. But Kingboard emphasized that Country Garden’s failure to repay, if it ultimately defaults, would have limited impact on the company’s business and finances. Such assurances calmed investors, and Kingboard’s stock fell only slightly after the announcement, shedding less than 1% before rebounding two days later.

Impact on profits 

Only time will tell what impact Kingboard will suffer from a default on the loan. The company’s revenue fell 33% year-on-year to HK$18.7 billion in the first half of the year on weakness in its two core businesses in copper-clad panels and chemical products. Its profit fell 42% to HK$1.39 billion. 

With no signs of immediate improvement on the horizon for its main businesses, any provision for a default on the Country Garden debt is likely to take a big bite out of Kingboard’s full-year performance. The company’s broader investment portfolio worth HK$7.15 billion could also contain more downside surprises due to the current dismal state of the Hong Kong stock market. 

Kingboard’s woes may be just the tip of the iceberg. Long before its announcement, Chuang’s Consortium International (0367.HK) and Chuang’s China Investment (0298.HK) also announced that they had lost HK$2 billion from investments in China’s housing market.

Lifestyle International (1212.HK), operator of Sogo department stores in Hong Kong, also lost hundreds of millions of Hong Kong dollars from its bets on the market, as did Chinese Estates (0127.HK), owned by the brother of Lifestyle International’s chairman.

The growing contagion among Hong Kong companies shows how many businesses at the Chinese property market’s periphery area also exposed. Ratings agency Moody’s said in August that China’s domestic real estate loans accounted for more than 10% of total loans from some of Hong Kong’s small and medium-sized banks, which will likely need to write down those loans and take related impairment charges in the next 12 to 18 months.

The situation is more worrisome for smaller companies with other types of industry exposure, such as contractors, real estate agents and other providers of professional services. Centaline Property Chairman Shih Wing Ching previously complained that mainland developers owe the company, a leading Hong Kong real estate broker, 1 billion yuan in commissions. Shih may even look lucky compared with another broker, E-House (China) Enterprise (2048.HK), which is currently trying to reorganize after being unable to collect billions of yuan in commissions. 

Such woes hint that other companies with exposure to real estate developers must also be suffering. Accordingly, any further deterioration of the growing default crisis is likely to engulf a broader swath of companies with exposure to the sector.

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