Admiral Nemo
Value, debt, growth at reasonable price, bonds

Country Garden - A Growth Company Lives On Borrowing


Country Garden (OTCPK:CTRYF) is a large Chinese property developer listed on Hong Kong Stock Exchange. The company operates in a very cyclical sector and has a highly leveraged balance sheet. Country Garden's rapid expansion in recent years is mostly debt fueled. The company's earnings quality is poor and there are signs of financial shenanigans. Our analysis also casts doubts on the competitive advantages the company proclaims. Country Garden's true leverage is much higher than the conventional credit metrics indicate. At 5-6% yield to maturity, we find the company's bonds are extremely expensive. Its equity is similarly overvalued.

Part I - Speculative Customer Base

China has a housing bubble of gigantic size and it is bursting. Like it...

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