China to increase support for ‘too-big-to-fail’ property developers
CHINA is planning to usher in further support measures to ease liquidity stress among some of the country’s “too-big-to-fail” developers amid the persistent property downturn, said people familiar with the matter.
The sources said that the Financial Stability and Development Committee (FSDC) had told banking and securities regulators late last week to shore up the balance sheets of some “systemically important” developers. They added that such developers would need to receive “unqualified” auditing reviews showing they had reliable financial statements, to be eligible for support. The developers would also need to have no record of major violations, such as defaulting on publicly issued debt.
The sources, who declined to be named discussing a private matter, also said that financial institutions and regulators could draw up new lists of so-called quality developers, based on the eligibility criteria and their own compliance requirements.
China has more than 100 listed real estate developers with market values of at least US$1 billion, and which have received unqualified auditing reviews for their financial results ending in 2022, according to data compiled by Bloomberg. The sources said the authorities are unlikely to disclose the names of eligible developers.
Support could take the form of equity financing and loans, or the creation of real estate investment trusts and spurring acquisitions.
This latest directive underscores Beijing’s stance towards backing the strongest players – and leaving the minnows behind – in a real estate market mired in a record slowdown and deepening liquidity crunch. Chinese developers’ US dollar bonds joined a stock rally on Wednesday (Jan 4), with a Bloomberg index of developer shares surging as much as 5.4 per cent, extending its gain to 69 per cent since Oct 31.
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Starting in November, the Chinese government implemented policy support measures for the property sector. Another Bloomberg index showed that these measures led to a jump of about 39 per cent in average prices of property-dominated China high-yield US dollar bonds. The government has hinted at further aid, with outgoing Vice-Premier Liu He describing it as a “pillar” of the world’s second-largest economy.
Even with the latest support measures, China’s home sales have continued to slump. They plunged 31 per cent in December from a year earlier, underscoring the challenges of reversing the downturn amid rampant Covid outbreaks.
Overleveraged companies, such as China Evergrande Group and Sunac China Holdings, were kneecapped by the unprecedented assault on the housing market and restrictions on developer borrowing that started in 2020. Evergrande, the world’s most-indebted real estate company, failed to come up with a “preliminary restructuring plan” that it had promised by the end of July. It also missed another self-imposed 2022 year-end deadline.
The FSDC, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission did not immediately respond to requests seeking comment. BLOOMBERG
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