HONG KONG (Reuters) -Country Garden has proposed a deal to its offshore creditors that will cut its debt by $11.6 billion, paving the way for the property developer to seek more time from the high court in Hong Kong to implement a restructuring plan.

The indebted developer has reached an understanding with a lender group made up of seven banks ahead of the company's liquidation hearing on Jan. 20 in Hong Kong, bringing it closer towards a restructuring of its offshore debt.

Once China's biggest property developer, Country Garden defaulted on $11 billion in offshore bonds in late 2023, deepening a debt crisis in the sector that had already experienced defaults by many developers, including China Evergrande Group.

Country Garden had $16.4 billion of offshore debt at the end of 2023, including $10.3 billion in bonds and three syndicated loans with an outstanding principal amount of $3.6 billion. Both are covered by the restructuring.

The proposal, announced on Thursday, outlines options for creditors, including a conversion of debt into cash with a 90% haircut or receiving new debt instruments with delayed maturity.

Some options include extending the maturity by as much as 11-1/2 years alongside choosing mandatory convertible bonds and new debt instruments.

"The company is particularly pleased with the interest shown by certain banks in supporting the company over the long term to navigate current challenges," Country Garden said.

It also said its controlling shareholder, Chairperson Yang Huiyan, is considering converting her shareholder loan, with $1.1 billion outstanding principal, into equity in the group.

The negotiations over the definitive terms of the proposal are still ongoing, the company said.

Country Garden's December contracted sales dropped 50% from the previous year to 6.91 billion yuan ($942.43 million), according to a regulatory filing.

The company showed a revised-down cash flow projection to some creditors when it submitted the preliminary terms of its restructuring proposal to them, Reuters reported in November.

A prolonged property market slump has been weighing on developers' ability to repay debt.

Smaller rival Sunac China has informed some of its offshore creditors it is unlikely to meet a September maturity deadline for its restructured bonds, sources said, as weak sales raise the prospect of a new round of offshore debt restructuring in the property sector.

Country Garden will hold a board meeting next Tuesday to approve its overdue 2023 audited annual results and 2024 unaudited interim results.

Shares of the company have been suspended since April 2, 2024, pending the release of the financial results.

($1 = 7.3321 Chinese yuan renminbi)