Down Debt

China allows banks to facilitate funding for struggling developers

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

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The People’s Bank of China held a meeting with about 20 major banks and asset management firms last week to help resolve the crises of about a dozen major property companies, including China Evergrande Group, the sources said, asking not to be identified discussing private matters. The central bank has asked for looser requirements on a range of financing, from loans for property purchases to extending debt maturities, the sources added.

The PBOC said in response to a request for comment from Bloomberg that it urged banks at a meeting on April 19 to maintain stable and orderly real estate financing while distinguishing project risks from business risks. . He also reiterated that risks to key developers should be addressed in a market-based and law-abiding manner.

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 undermine consumer confidence and further erode sales of accommodations.

In a bid to stage a soft landing for the sector, regulators in December eased borrowing limits on major property companies used to fund acquisitions and then called on banks to increase home lending.

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

Transaction financing

Measures discussed at the PBOC meeting included more flexible acquisition financing requirements when target projects are in the early stages of development, the people said. In previous years, banks have been told not to lend to less-developed housing projects as regulators seek to curb excessive borrowing, local media reported at the time.

The central bank has also advised financial institutions to extend already delinquent loans if developers provide additional credit support, such as pledging more assets, the sources added. The PBOC also reiterated its support for struggling businesses through property development loans, the people said.

Around 12 developers, including China Evergrande, Sunac China Holdings Ltd. and Shimao Group Holdings Ltd., will be supported in the first wave of the program. The list of developers may change as the situation develops, the people said.

The credit crunch facing real estate companies has been exacerbated by the inability to raise significant cash through asset sales. Developers and financial institutions plan to raise at least 217 billion yuan ($33 billion) through acquisition bond sales and credit lines this year, according to Bloomberg calculations based on public announcements.

Slow pickup

While fundraising has accelerated, the amount generated remains low compared to refinancing needs. Chinese developers must repay or refinance nearly $90 billion in local and offshore notes this year, according to data compiled by Bloomberg.

Besides banks, China’s bad debt managers are urged to support the sector. China set up these companies including China Huarong Asset Management Co., China Cinda Asset Management Co. and China Great Wall Asset Management Co. in the aftermath of the Asian financial crisis to carve out trillions of yuan in bad debts from banks of state.

(updated with PBOC comments in third paragraph)

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