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Country Garden’s Forest City: Progress Amid Financial Hurdles in Malaysia

WorldAsia-PacificCountry Garden's Forest City: Progress Amid Financial Hurdles in Malaysia

In the midst of looming concerns about its financial solidity, Chinese real estate behemoth, Country Garden (2007.HK) confirmed on Monday that its colossal $100-billion undertaking in Malaysia is advancing as intended. Even with these reassurances, recent financial missteps have raised eyebrows and led many to question the potential ramifications on a larger economic scale, including overseas impacts.

Recent Financial Turbulence

The apprehension surrounding Country Garden, China’s premier private property developer, intensified after its failure to honor two dollar coupon payments this month. The overlooked payments, amounting to a hefty sum of $22.5 million, reignited the smoldering worries of China’s property debt crisis. Many economic experts fear that if unchecked, this crisis could be a significant hindrance to the nation’s broader economic resurgence and could also lead to repercussions in international markets.

Response to Concerns

In response to the growing chorus of doubters, Country Garden’s units operating in Singapore and Malaysia issued a statement to set the record straight. The statement read, “Our company’s endeavors in Malaysia continue unhindered with robust sales figures to support.” Emphasizing their stable position in the region, they commented that operations there remained “safe and stable.”

The developer also touched upon their proactive approach to manage their debts. The statement continued, “Various strategic approaches towards debt management are currently under review. These are geared towards mitigating the stresses associated with periodic liquidity and to cement the foundation for our enduring growth.” The specifics of these measures, however, were not disclosed.

Bank Negara Malaysia, the central bank of the nation, also weighed in, suggesting that Malaysian banks have a rather limited exposure to Country Garden. The central bank further allayed concerns by confirming that the developer’s Malaysian division was up to date with its loan payments. They shared their perspective with Reuters, noting, “Country Garden Holdings Ltd’s current trajectory in China isn’t anticipated to cast a significant shadow on Malaysia’s property market trends or valuations.”

The Ambitious Forest City Project

Country Garden’s magnum opus, the Forest City project, is a testament to their ambition. This mammoth development, spread across four reclaimed islands in Johor, a Malaysian state bordering the affluent city of Singapore, represents their most audacious overseas venture.

However, since its inception in 2016, the project has navigated turbulent waters. Factors such as China’s capital outflow restrictions and the devastating COVID-19 pandemic slashed demand considerably. Further, local Malaysians have voiced their apprehensions about a potential surplus in housing and severe ecological repercussions due to the extensive land reclamation activities associated with the project.

Despite these challenges, the blueprint for Forest City remains awe-inspiring. By 2035, it aims to be a bustling metropolis, home to 700,000 residents, interspersed with office high-rises, expansive malls, educational institutions, and a variety of residential structures.

Malaysian Government’s Support

Amidst the challenges, there seems to be a glimmer of hope. Malaysian Prime Minister Anwar Ibrahim announced a significant boost for the project, designating it as a “special financial zone.” This move is envisioned to magnetize investments and substantially reduce the overhead costs of business operations in the area.

In addition, to make the proposition even more tantalizing for potential stakeholders, Prime Minister Anwar unveiled a slew of incentives. These included a tempting 15% special income tax rate for skilled labor and the provision for multiple-entry visas.

RHB analyst Loong Kok Wen opined that these incentives would prove pivotal in drawing companies and inhabitants from neighboring Singapore, notorious for its steep living costs. She said, “The recent designation could breathe new life into Forest City, which has, unfortunately, been in the media’s crosshairs for all the wrong reasons over the past years.”

Echoing a similar sentiment, Steven Leung, director at UOB Kay Hian based in Hong Kong, expressed that Malaysia’s overtures would resonate positively for Country Garden.

With a renewed vigor, Country Garden is now embarking on the second phase of the Forest City project, concentrating on unearthing additional investment avenues. The company perceives the Malaysian government’s incentives as a vote of confidence in the project’s potential.

Stock Market Response

The ripple effect of these developments was evident in the stock market. Although the shares of Country Garden concluded the day without any significant gain, they had surged to a promising 9% at one point on Monday.

It’s worth noting that Country Garden is not single-handedly helming the Forest City initiative. The project is the fruit of a collaboration with Esplanade Danga 88, a Malaysian private enterprise, which enjoys the backing of both the Johor government and the state’s sultan.

In conclusion, while uncertainties cloud the horizon for Country Garden, with support from the Malaysian government and their intrinsic resilience, they remain steadfast in their pursuit of turning the Forest City vision into a reality. Only time will tell if this gargantuan project will weather the storm and emerge as the jewel in Country Garden’s crown.

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