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China tightens bond sale rules to curb developers' debt


CHINA has taken a fresh step to rein in debt growth among the nation's property developers, amid signs that a strong housing market recovery has prompted policy-makers to refocus on risk prevention.

The National Association of Financial Market Institutional Investors (NAFMII), an influential body in the nation's vast inter-bank market, has issued new guidelines that let residential property developers apply for new bonds that can be used only for debt refinancing.

In addition, the proposed size of any new bond must not exceed

85 per cent of the total outstanding debt that the issuer needs to repay. Developers had previously been able to use proceeds from bond sales to repay all due debts or for other purposes.

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"The latest move is intended to reduce property developers' outstanding debt size and cut their leverage," said Li Yuze, credit analyst from China Merchants Securities. "In addition, it also aims to prevent builders from rolling over old debt too frequently."

The rules apply only to bonds sold on the interbank market, which is the main bond-trading venue. The new rules took effect after Aug 10.

The real estate sub-index on the Shanghai Stock Exchange finished Thursday's morning session down 0.6 per cent - the top loser among its peers - while the benchmark Shanghai Composite Index was flat.

The latest curb on debt refinancing came after China's housing market staged a remarkable comeback from a dearth of activity during the virtual economic shutdown in the immediate aftermath of the Covid-19 outbreak.

Home prices in the country rose at the fastest pace in 10 months in June, prompting some local authorities to roll out fresh housing curbs.

Top policy-makers also have reiterated in recent weeks that the property sector will not be used as short-term stimulus to shore up the economy. BLOOMBERG

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