China's top banks to issue offshore loans to help developers repay debt -sources

Midea Real Estate Holding

02/12/2022 09:26

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      Four state-owned banks given until Dec 10 to make loans
-sources
    

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      Debt maturity wall looms in first quarter of 2023
    

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      Funds seen helping to shore up investors' confidence
-sources 
    

  
 (Adds details, context; paragraphs 5,10,14-20)
    By Julie Zhu, Engen Tham and Jing Xu
       HONG KONG/SHANGHAI/BEIJING, Dec 2 (Reuters) - China has
ordered its top four state-owned banks to issue offshore loans
to help developers repay overseas debt, three people with
knowledge of the matter told Reuters, in Beijing's latest
support measure for the cash-starved property sector. 
    The regulators have given the banks 'window guidance', or
verbal orders that leave no paper trail, setting a date of Dec.
10 by which to make loans secured against domestic assets, said
two of the sources, who all spoke on condition of anonymity.
    China has stepped up support in recent weeks to undo a
liquidity squeeze that has stifled the sector, which makes up a
quarter of the world's second-largest economy and has been a key
driver of growth.
    A growing list of developers has defaulted on overseas
creditor obligations over the past year, prompting some analysts
to warn that such disruptions could blunt foreign investors'
appetite for fresh debt issuance by Chinese companies.
    Now a debt maturity wall looms for developers, with $39
billion of debt set to mature in the first quarter of next year,
 and $10 billion of that is denominated in dollars, Refinitiv
data shows.  
    Funds flowing from banks will allow developers to repay
offshore loans and dollar bonds, helping to repair global
investors' bruised confidence, two of the sources said.
    Developers will qualify if their balance sheets are seen as
being of "good quality", such as CIFI Holdings  0884.HK ,
Country Garden  2007.HK , Longfor Group  0960.HK , Midea Real
Estate  3990.HK  and Seazen Group  1030.HK , one source said. 
    Each of the four banks, Bank of China  601988.SS , China
Construction Bank  601939.SS , Industrial and Commercial Bank of
China  601398.SS  and Agricultural Bank of China  601288.SS ,
will pick several developers to fund, the three sources said. 
    Each bank will process three to four offshore loan proposals
that will be secured against developers' assets in China, said
two of the sources, adding that Beijing would expand the scheme
later by adding banks.
    The third source said that, while the big four banks
preferred fresh lending to go to state-backed developers, they
would have to include some private firms, which have a greater
need for offshore loans.       
    The People's Bank of China, the central bank, and the China
Banking and Insurance Regulatory Commission (CBIRC) did not
immediately respond to Reuters' requests for comment. 
    The big four banks did not respond to requests for comment,
nor did representatives of CIFI, Country Garden, Longfor, Midea
Real Estate and Seazen.
    SUPPORT MEASURES
    Beijing's aggressive support for the property sector
represents a retreat from a crackdown begun in 2020, targeting
speculators and indebted developers in a bid to reduce financial
risk.
    Chinese banks make offshore loans secured against domestic
assets to companies that need foreign funds, but regulatory
tightening in the last couple of years to rein in debt-fuelled
empire-building by corporates hampered that kind of lending. 
    Cash-strapped developers have been struggling to tap sources
of fresh funding to finish building apartments and repay
suppliers and overseas debt, while home demand has crumbled in
the face of stringent, lengthy COVID-19 curbs.
    Risks to the stability of the financial system are growing
on the continuing sluggishness of the property sector and an
economic slowdown, making smaller banks more vulnerable, rating
agency Moody's has warned.
    Last week, China's biggest banks pledged credit of at least
$162 billion to developers.
    The new move comes as some foreign bondholders are scouting
for property bargains after the recent weeks' slew of support,
but the uncertain outlook for home demand is keeping others on
the sidelines.
    China's central bank will also offer cheap loans to
financial firms to buy bonds issued by property developers,
separate sources have told Reuters.
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FACTBOX-Regulatory measures to support China's property sector  
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 (Reporting by Julie Zhu in Hong Kong, Engen Tham in Shanghai
and Xu Jing in Beijing; additional reporting by Ziyi Tang in
Beijing; Editing by Sumeet Chatterjee and Clarence Fernandez)
 ((julie.zhu1@thomsonreuters.com; +852 2843 6519; Reuters
Messaging: julie.zhu1.thomsonreuters.com@reuters.net))