China takes steps to support some property developers

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HONG KONG- China will guarantee new onshore bond issues by a few select private developers to support its embattled property sector, sources said on Tuesday, while the state planner said it would boost economic demand and speed up infrastructure projects.

News of the planned state support for some better-quality private developers saw the Hang Seng mainland properties sub-index rise by as much as 10 percent at one point, before profit taking pared gains.

Policymakers have been trying to stabilize the sector that accounts for a quarter of the national GDP after a string of defaults among developers and a slump in home sales.

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The property sector’s troubles and weak consumption have weakened a nascent recovery in an economy that has been hobbled by strict COVID-restrictions.

Bleak data for July showed that the world’s second-biggest economy unexpectedly slowed and property investment fell at the fastest clip this year.

And on Tuesday, officials from the state planner gave assurances that policies would be geared to boosting economic demand in “a strong, reasonable and moderate manner” and infrastructure construction would be accelerated in the third quarter of the year.

Yuan Da, a spokesperson at the National Development and Reform Commission (NDRC), told a news conference that policy banks would grant more credit and more special local government bonds would be issued.

Homebuyers, and existing owners looking to improve their home, would also receive support, Yuan said.

There are also expectations for a cut in the loan prime rate later this month, which could give some relief to mortgage holders.

On Monday, the central bank unexpectedly cut the rate on 400 billion yuan ($59.33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75 percent.

Addressing fears that developers regarded as financially sound could also be impacted by the malaise gripping the property sector, four sources with knowledge of the matter said regulators have asked state-owned China Bond Insurance Co Ltd to provide guarantees for bond issuance by Longfor Group and CIFI Holdings.

Two of the sources said Longfor has already sold 3-year and 5-year medium term notes totaling up to 1.5 billion yuan ($220.80 million) with a guarantee from China Bond Insurance.

China Bond Insurance Co will provide “full amount, unconditional and irrevocable joint liability guarantee” to these medium-term notes, sources told Reuters.

Financial information provider REDD first reported the plan to provide guarantees for new bond issues by a few select mainland bond issuers on Monday evening.

Its report said policymakers had drawn up a list of half a dozen developers regarded as financially stronger, including Gemdale Corporation and Country Garden Holdings, whose bond issues would receive guarantees. – Reuters

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