PBOC calls for more support for private builder bond sales

CHINA signalled a possible expansion of a key programme to boost liquidity for real estate firms beset by an industry debt crisis, as distress mounts following record defaults.

People’s Bank of China (PBOC) deputy governor Pan Gongsheng asked state-owned China Bond Insurance on Thursday (Oct 27) to step up support for bond sales by private-sector developers. The debt insurer is the linchpin of a closely watched programme that emerged in August to help a select group of builders issue local bonds by guaranteeing those offerings.

The credit enhancement offered by China Bond Insurance has played an important role in stabilising private builders’ bond financing and had a good impact, Pan said during a visit to the company Thursday.

Industry stocks and bonds surged in August after reports on the guarantee plan, but the rebound faded within weeks and the deepening liquidity crisis has since worsened. There have been signs that the programme, in its current form, isn’t sufficient to stem the distress. CIFI Holdings Group, China’s 15th-largest developer by contracted sales this year, sold yuan notes under the scheme, but just weeks later failed to pay a coupon on a Hong Kong dollar convertible bond.

The broader property crisis has shut most private developers out of the market for bond financing both domestically and offshore. China’s dollar junk bonds, dominated by developers, have dropped for six straight weeks and hit a record low of 52.9 US cents Thursday.

The rout had its roots in a clampdown started in 2020 on excessive borrowing by property firms and speculation by home buyers, as authorities wean the industry of debt-fuelled growth and guide down prohibitively expensive housing prices. But as housings projects got stalled this year by builders that couldn’t pay their bills and rare mortgage boycotts spread, regulators have sought to ensure firms have liquidity to finish up construction.

Still, recent developments had raised some hopes among investors that authorities would promote more use of the guarantee programme.

For the first time, developers under the plan started earlier this month to come back with more such planned offerings. Seazen Holdings, which has residential and commercial projects in more than 100 cities, plans to issue such notes, as do Country Garden Holdings and Longfor Group Holdings.

Deploying bond financing tools for private companies has promoted inclusive, healthy and stable development of the financial market, Pan said in his comments Thursday, according to a statement from the National Association of Financial Market Institutional Investors. He reiterated a government policy that properties are for living in and not for speculation.

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Pan also highlighted the need to continuously innovate and enrich credit enhancement products and models, as well as improve internal risk management, according to the statement. BLOOMBERG