China property shares, bonds rally on hopes govt measures will aid liquidity

China Aoyuan

20/01/2022 05:08

HONG KONG, Jan 20 (Reuters) - Stocks and bonds of Chinese
property developers stretched their gains into Thursday on hopes
a slew of recent government measures would help ease a funding
squeeze in the embattled sector, even as another developer
warned of default.
    Beijing unexpectedly lowered borrowing costs on its
medium-term loans for the first time since April 2020, and cut
its benchmark lending rates for corporate and household loans
for a second straight month.  urn:newsml:reuters.com:*:nL1N2U002I
    Sources have told Reuters that policymakers were also
drafting nationwide rules to make it easier for developers to
access funds from sales still held in escrow https://www.reuters.com/world/china/exclusive-china-drafts-rules-ease-property-developers-use-escrow-funds-sources-2022-01-19
 accounts. 
    These accounts are currently controlled by municipal
governments, with no central oversight, and withdrawals have
been tightened in the wake of the sector's woes.  urn:newsml:reuters.com:*:nL1N2TZ0KD
    Better access to escrow funds would improve the short-term
liquidity and help developers buy time "to meet their debt
repayments until property sales show meaningful recovery",
expected in late March or April, brokerage Jefferies said. 
    Citi agreed that improving mortgage and potential easing of
escrow accounts "could help avoid the worst scenario", adding it
expects the news to have a positive impact on share prices. 
    But it cautioned there were still short-term overhangs
including expected sales decline in the first quarter and a few
more developers seeking offshore bond extension. 
    By noon, the Hang Seng Mainland Properties Index  .HSMPI 
rose 5%, up for a third straight day, led by property firms
deemed facing liquidity pressure.
    Sunac China  1918.HK  and Logan Group  3380.HK  jumped more
than 11%, Shimao Group  0813.HK  and Kaisa Group  1638.HK 
surged 10.7% and 10% respectively.
    Sunac's April 2024 dollar bond  US228788970=  rose to 67.5
cents on the dollar, data from Duration Finance shows, versus to
41.5 a day ago. Its three yuan bonds also surged 20% during Asia
early hours, prompting temporarily suspensions.
    The bonds rallied even as Fitch downgraded Sunac to "BB-"
from "BB", with a negative outlook, citing decreasing financial
flexibility amid high capital-market volatility.
    Sunac has transferred 4.25 billion yuan ($670 million) to
pay for its two onshore debts coming due in the next three
weeks, a person close to the company said. 
    Sunac declined to comment.
    Shares in China Aoyuan  3883.HK , however, fell earlier in
the day on news the developer plans not to make principal and
interest payments for all its offshore debt, and was working on
a restructuring proposal. Shares steadied by noon. urn:newsml:reuters.com:*:nFWN2TZ179
    Regulatory curbs on borrowing have driven the sector into
crisis, highlighted by China Evergrande Group  3333.HK  which
was once China's top-selling developer but is now the world's
most indebted property firm with liabilities of $300 billion.
    In recent months, Beijing has taken steps to restore
stability, including making it easier for state-backed
developers to buy up distressed assets https://www.reuters.com/business/shimao-group-unit-talks-with-lender-missed-trust-loan-payment-2022-01-07/#:~:text=SHANGHAI%2FHONG%20KONG%2C%20Jan%207,liquidity%20crisis%20in%20the%20sector
 of indebted private firms, according to a source.
    "Overall, we find improved top-level policy clarity since
December as a downside protection, and impending measures to
protect the real estate sector will bring a healthier 2022 than
2021," Citi said in its report.
 ($1 = 6.3432 Chinese yuan)

 (Reporting by Clare Jim; Editing by Himani Sarkar)
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters
Messaging: clare.jim.thomsonreuters.com@reuters.net))