China weighs more steps to shore up ‘too-big-to-fail’ property developers

The latest directive underscores Beijing’s stance towards backing the strongest developers while leaving the minnows behind. PHOTO: REUTERS

BEIJING - The Chinese authorities are planning to bring in more support measures to ease liquidity stress at some of the country’s too-big-to-fail developers as the property downturn persists, according to people familiar with the matter.

The Financial Stability and Development Committee (FSDC) told the banking and securities regulators late last week to help shore up the balance sheets of some “systemically important” developers, said the people. In order to be eligible, firms need to receive “unqualified” auditing reviews to show they have reliable financial statements and have no record of major violations, including defaulting on publicly issued debt, they added.

Financial institutions and regulators could draw up new lists of so-called quality developers based on the criteria and their own compliance requirements, according to the people. The aid could range from providing equity financing and loans, to allowing the creation of real estate investment trusts and spurring acquisitions.

The latest directive underscores Beijing’s stance towards backing the strongest players in a real estate market mired in a record slowdown and deepening liquidity crunch while leaving the minnows behind.

Chinese developers’ dollar bonds joined a stock rally on Wednesday, 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.

The Chinese government has implemented a string of policy support since November and hinted at further aid for the property sector, with outgoing Vice-Premier Liu He describing it as a “pillar” of the world’s second-largest economy.

The measures have led to a jump of about 39 per cent in average prices of property-dominated China high-yield dollar bonds, another Bloomberg index shows.

China has more than 100 listed real estate developers with market values of at least US$1 billion (S$1.34 billion) that have received unqualified auditing reviews for their financial results ending in 2022, according to data compiled by Bloomberg. The authorities are unlikely to disclose the names of the qualified developers, said the people.

The FSDC, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission did not immediately respond to requests seeking comment.

Even with the latest support measures, China’s home sales continued to slump in December, plunging 31 per cent from a year earlier, underscoring the challenges of reversing the downturn amid rampant Covid-19 outbreaks.

The unprecedented assault on the housing market and restrictions on developer borrowing since 2020 have kneecapped over-leveraged companies such as China Evergrande Group and Sunac China Holdings.

Evergrande, the world’s most indebted real estate firm, failed to come up with a “preliminary restructuring plan” it promised by the end of July and missed another self-imposed 2022 year-end deadline. BLOOMBERG

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