China central bank to offer cheap loans to support developers' bonds-sources

Midea Real Estate Holding

25/11/2022 08:51

(Adds details on stock movements)
    By Julie Zhu and Engen Tham
       HONG KONG/SHANGHAI, Nov 25 (Reuters) - China's central
bank will offer cheap loans to financial firms for buying bonds
issued by property developers, four people with direct knowledge
of the matter said, the strongest policy support yet for the
crisis-hit sector.
    The People's Bank of China (PBOC) hopes the loans will boost
market sentiment toward the heavily indebted property sector,
which has lurched from crisis to crisis over the past year, and
rescue a number of private developers, said the people, who
asked not to be named as they were not authorised to speak to
the media.
    China has stepped up support in recent weeks for the
property sector, a pillar accounting for a quarter of the
world's second-biggest economy. Many developers defaulted on
their debt obligations and were forced to halt construction. 
    The country's biggest banks this week pledged at least $162
billion in credit to developers.
    The PBOC loans, through its relending facility, are expected
to be at much lower than the benchmark interest rate and would
be implemented in the coming weeks, giving financial
institutions more incentive to invest in private developers'
onshore bonds, two sources said.
    Terms such as the interest rate on the loans were not
immediately known. 
    The PBOC is also drafting a "white list" of good-quality and
systemically important developers that would receive wider
support from Beijing to improve their balance sheets, two of the
sources said.
    The central bank did not immediately respond to a request
for comment on the planned measures.
    At least three private developers - including Longfor Group
Holdings Ltd  0960.HK , Midea Real Estate Holding Ltd  3990.HK 
and Seazen Holdings  601155.SS  - received the green light this
month to raise a total of 50 billion yuan ($7 billion) in debt.
    If there were not enough demand from investors for such new
bonds, the PBOC would likely step in to provide liquidity via
the relending facility for the rest of the issuance, said one of
the four people and another source.
    Hong Kong's Hang Seng Mainland Properties Index  .HSMPI  was
up as much as 4.7% on Friday, adding 1 percentage point after
Reuters reported the PBOC moves. China's top developer by sales,
Country Garden  2007.HK , was up 10%, CIFI Holdings  0884.HK 
was up more than 5% and Longfor nearly 4%. 
    FROM CRACKDOWN TO AGGRESSIVE SUPPORT
    Relending is a targeted policy tool the PBOC typically uses
to make low-cost loans to banks to support the slowing economy,
as the central bank faces limited room to cut interest rates on
concerns about capital flight.
    The PBOC in recent months has used the relending facility to
support sectors including transport, logistics and tech
innovation that were hard hit by the COVID-19 pandemic or are
favoured by long-term state policies.    
    Beijing's aggressive support for the property sector marks a
reversal from a crackdown begun in 2020 on speculators and
indebted developers in a broad push to reduce financial risks. 
    As a result of the crackdown, though, property sales and
prices fell, developers defaulted on bonds and suspended
construction. The construction halts have angered homeowners who
have threatened to stop mortgage payments.
    The PBOC also plans to provide 100 billion yuan ($14
billion) in M&A financing facilities to state-owned asset
managers mainly for their acquisitions of real estate projects
from troubled developers, two sources said.
    Chinese media reported on Monday the central bank planned to
provide 200 billion yuan in interest-free relending loans to
commercial banks through the end of March for housing
completions.
    Among other recent official support, China's interbank bond
market regulator said this month it would widen a programme to
support about 250 billion yuan ($35 billion) of debt offerings
by private firms. 
    Much of Beijing's previous support targeted state-owned
developers.
    Yi Huiman, chairman of China's securities regulator, said on
Monday the country must implement plans to improve the balance
sheets of "good quality" developers.
    Fitch Ratings said on Thursday private Chinese developers
face higher liquidity risk, in terms of debt structure with
greater short-term maturity pressure, than state-owned peers as
banks and other creditors are becoming reluctant to lend.
    ($1 = 7.1609 Chinese yuan renminbi)
 (Reporting by Julie Zhu in Hong Kong and Engen Tham in
Shanghai; Additional reporting by Kevin Huang in Beijing;
Editing by Sumeet Chatterjee, William Mallard and Raissa
Kasolowsky)
 ((julie.zhu1@thomsonreuters.com; +852 2843 6519; Reuters
Messaging: julie.zhu1.thomsonreuters.com@reuters.net))