China property M&A deals pick up in relief for developers
Hong Kong
CHINA'S efforts to spur asset sales by cash-strapped developers are starting to gain momentum with a flurry of deals involving state-run rivals, potentially easing the industry's debt crisis.
In recent days, stressed property firms Agile Group Holdings and Shimao Group Holdings have announced sales of stakes in companies to state-owned enterprises (SOEs) to raise cash.
Regional lender Shanghai Pudong Development Bank priced a bond to help fund loans for mergers and acquisitions (M&A) in the sector, and at least 2 state-owned developers announced plans to issue such M&A notes.
Chinese regulators see asset sales as a key step to easing the liquidity crisis that is afflicting the real estate industry and impeding an economic recovery. Authorities in December eased limits on borrowing by major property firms used to fund M&A, part of efforts to engineer a soft landing for the sector after years of debt-fuelled expansion.
The latest deals spurred optimism among bond and stock investors. A Bloomberg Intelligence index of Chinese developer stocks rose for a fifth day on Monday (Jan 24), taking gains over that period to as much as 12 per cent, on course for the most in 18 months. Chinese high-yield US dollar bonds, which are dominated by builders, rose as much as 2 cents on the dollar, said credit traders.
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Agile Group announced the sale of its stake in a joint venture for 1.84 billion yuan (S$391 million) on Monday. The purchaser is Guangdong Zhonghai Property, an indirect wholly-owned unit of state-run China Overseas Land & Investment, one of the country's largest developers.
"Potential liquidity support from state developers may ease investors' concerns over its solvency," Bloomberg Intelligence analysts Kristy Hung and Patrick Wong wrote in a note.
Agile was downgraded deeper into junk by global credit rating companies last week. Asset purchases may help state builders gain more market share from their ailing private competitors. In 2021, 40 per cent of the top 10 developers' gross contracted sales were generated by central SOEs, up from 20 per cent market share in 2010, said Bloomberg Intelligence.
Shimao Group said on Friday it agreed to sell property management unit Shanghai Shimao Development for 1.06 billion yuan. The buyer is Shanghai Jiushi, which mainly operates state-owned assets authorised by the Shanghai government.
In addition, Shimao is in talks with China Overseas Land & Investment to sell its stake in a Guangzhou project, local media outlet Cailian reported on Monday.
Shares of Agile Group jumped as much as 8.1 per cent in Hong Kong, while Shimao climbed
6.8 per cent. Shimao's 4.75 per cent 2022 note rose 5 US cents to 60.8 cents, and Agile's 5.5 per cent 2026 note gained 1.6 cents to 32.7 cents, showed Bloomberg-compiled data.
Sunac China Holdings sold stakes in a few projects to state-owned investors including Guangdong-based Huafa Group, Cailian reported last week.
Meanwhile, Shanghai Pudong Development Bank priced a 3-year, 30 billion yuan bond at 2.69 per cent on Friday, with 5 billion yuan of the proceeds to be used for funding M&A in China's property industry, the lender said. The bond was the first to be issued by a financial institution for M&A deals in the real estate development sector, the bank said on Saturday in a WeChat statement.
State-owned China Merchants Shekou Industrial Zone Holdings is selling as much as 1.29 billion yuan of M&A bonds on China's interbank bond market on Monday and Tuesday. C&D Real Estate aims to raise up to 1 billion yuan from such notes this week. BLOOMBERG
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