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China Allows Banks to Ease Financing for Distressed Developers

© Bloomberg. The People’s Bank of China (PBOC) headquarters building in Beijing, China, on Wednesday, May 19, 2021. Beijing aced its economic recovery from the pandemic largely via an expansion in credit and a state-aided construction boom that sucked in raw materials from across the planet.

(Bloomberg) — China’s central bank stepped up its support for several distressed developers by allowing banks and bad-debt managers to loosen restrictions on some loans to ease a cash crunch, according to people familiar with the matter.

The People’s Bank of China held a meeting with about 20 major banks and asset-management firms last week to help resolve crises at a dozen large real estate firms including China Evergrande Group, the people said, asking not to be identified discussing private matters. The central bank sought looser requirements on a range of financing, from lending for property acquisitions to extending maturities on debt, the people added. 

The PBOC didn’t immediately reply to faxed requests for comment on Monday. 

The meeting sends the strongest signal yet of Beijing’s support for cash-strapped developers as virus lockdowns and a sharp sell-off in Chinese stocks threaten to sap consumer confidence and further erode housing sales.

In an attempt to engineer a soft landing for the sector, regulators in December eased limits on borrowing by major property firms used to fund acquisitions and later called on banks to boost real estate lending. 

Yet liquidity stress has continued to spread across the industry, weighing on the world’s second-largest economy. At least 17 firms have defaulted on offshore bonds since authorities began cracking down on excessive borrowing and speculation in the housing market in 2020. The slowdown in housing sales continued last month despite additional measures rolled out by local governments. 

Deal Financing

The moves discussed at the PBOC meeting included looser acquisition financing requirements when target projects are in early development stages, said the people. In previous years, banks were told not to lend for less-developed housing projects, as regulators sought to curb excessive borrowing, local media reported at the time. 

The central bank also guided financial institutions to extend borrowings already overdue if developers provide additional credit support such as pledging more assets, the people added. The PBOC also reiterated its support for struggling firms through real estate development loans, said the people. 

About 12 developers including China Evergrande (HK:3333), Sunac China Holdings Ltd (HK:1918) and Shimao Property Holdings Ltd (HK:0813) will be supported in the first wave of the program. The list of developers may change based on the evolving situation, the people said. 

The credit crunch facing real estate firms has been exacerbated by the failure to raise much money from asset sales. Developers and financial institutions plan to raise at least 217 billion yuan ($33 billion) via acquisition bond sales and credit lines this year, Bloomberg calculations based on public announcements show. 

Slow Pick-Up

While fundraising has picked up, the amount generated remains small relative to refinancing needs. Chinese developers need to repay or refinance nearly $90 billion in local and offshore notes this year, according to data compiled by Bloomberg. 

Aside from the banks, China’s bad-debt managers are being asked to support the sector. China created these firms including China Huarong Asset Management Co Ltd (HK:2799), China Cinda Asset Management Co Ltd (HK:1359) and China Great Wall Securities Co (SZ:002939) in the wake of the Asian financial crisis to carve out trillions of yuan of bad loans from state banks.

©2022 Bloomberg L.P.

China Allows Banks to Ease Financing for Distressed Developers

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