China takes steps to help some property developers, boosting demand in economy

Surveillance cameras installed near a residential building under construction in Shanghai, China, July 20, 2022. REUTERS/Aly Song

HONG KONG (Reuters) – The Chinese government is pledging new onshore bond issuances by select private developers to help the struggling property sector, sources said on Tuesday. National planners said it would boost economic demand and speed up infrastructure projects.

News of planned state support for some higher quality private developers caused the Hang Seng mainland real estate sub-index to temporarily rise 10% before gaining.

Policymakers have sought to stabilize the sector, which accounts for a quarter of the country’s GDP, after a string of developer defaults and sluggish home sales.

Troubles in the real estate sector and weak consumption are undermining an early recovery in the economy, held back by draconian COVID-19 restrictions.

Dim data for July showed the world’s second-largest economy unexpectedly slowed, with real estate investment declining most sharply this year.read more

And on Tuesday, state planner officials said policies were aimed at boosting economic demand “in a strong, rational and moderate way” and that infrastructure construction would accelerate in the third quarter of this year. Guaranteed. Read More

Yuan Da, spokesperson for the National Development and Reform Commission (NDRC), said at a press conference that policy banks will provide more credit and more special local government bonds will be issued.

Home buyers and existing owners looking to improve their homes will also receive support, Yuan said.

A reduction in the prime rate for loans is also expected later this month, which could provide some relief to mortgage holders.

On Monday, the central bank unexpectedly lowered interest rates on 400 billion yuan ($59.33 billion) one-year medium-term loan facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%. .read more

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To address concerns that developers deemed financially sound could also be affected by the recession hitting the real estate sector, four sources familiar with the matter said: The regulator is the state-owned China Bond Insurance Company Limited, Longfor Group (0960 .HK) and CIFI Holdings (0884.HK).

Longfor has already sold a total of 1.5 billion yuan ($220.8 million) in 3- and 5-year medium-term notes backed by China bond insurance, two of the sources said.

China Bond Insurance will provide a “full, unconditional, irrevocable joint and several liability guarantee” for these medium-term bonds, sources told Reuters.

Financial information provider REDD first reported Monday night plans to provide guarantees for new bond issuances by a small number of select mainland bond issuers.

According to the report, policymakers have drawn up a list of six developers deemed financially strong, including Gemdale Corporation (600383.SS) and Country Garden Holdings (2007.HK).

REDD also said policymakers are considering asking state investors to subscribe to new bonds issued by developers. Issuers will have to provide collateral for state guarantees, but say they will have flexibility in how they use the proceeds.

CIFI, Country Garden and Longfor declined to comment. China Bond Insurance Co. Ltd and Gemdale declined to comment.

The Hang Seng Mainland Real Estate Index (.HSMPI) jumped 10% in the morning session before gaining 5.8% by the close. The sub-index easily outperformed, remaining over 1.1% below the main Hang Seng Index (.HSI).

Shares of Longfor and CIFI were up more than 12%, while Country Garden was up 9%.

In the dollar bond market, CIFI’s 2026 bond traded at 32.71 cents to the dollar, up from 32.11 cents on the previous day. Sino-Ocean Group’s (3377.HK) 2027 bond rallied from 26.750 to 27.437.

Despite investor relief that the state is providing support and hope that it could extend to other developers, some analysts cautioned.

JP Morgan analyst Karl Chan said on Tuesday’s conference call that developers will likely pay off offshore bonds at a time when sales are down 40-50% and offshore liquidity is drying up. said it was still a problem.

“Currently, the Chinese government supports onshore bond issuance, but what about offshore bonds?” Zhang said.

($1 = 6.7936 Chinese Yuan)

Reporting by Kevin Huang, Shuyan Wang and Liangping Gao from Beijing and Clare Jim from Hong Kong. Additional reporting by Scott Murdoch from Hong Kong.Edited by Simon Cameron Moore

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