Some China state-backed financiers cold-shoulder property rescue call: Sources

Property investment, home sales and new construction are plummeting as the troubles scare off potential buyers. PHOTO: EPA-EFE

HONG KONG/SHANGHAI (REUTERS) - Some of China's state-backed financial institutions are pushing back on Beijing's calls to support the embattled property sector due to concerns about the impact of such exposure on their balance sheets, seven people with knowledge of the matter said.

Without an explicit financial backstop from Beijing, senior executives at some of the institutions are wary of engaging with cash-strapped developers and later dealing with potential losses of their own, said two of the sources.

Signing off on financial support to struggling developers has become a concern as employees are increasingly held accountable by the authorities for poor lending and investment decisions, said the two sources.

China's property sector, which accounts for about a quarter of the economy, has been lurching from crisis to crisis since the summer of 2020 as a result of regulators stepping in to cut excess leverage in the sector, which led some developers to default on their debts and struggle to complete projects.

Property investment, home sales and new construction are plummeting as the troubles scare off potential buyers.

Last week, Reuters reported that China's banking regulator was scrutinising property sector loans at some local and foreign lenders to assess systemic risks as the real estate sector's debt crisis worsens.

The reluctance of some Chinese lenders shows the challenges and limited options for Beijing to help revive the sector.

The Chinese authorities have held multiple closed-door meetings in recent weeks during which banks and other financial institutions including securities companies were encouraged to support fund raising by developers, the two sources said.

Although the People's Bank of China (PBOC) has been nudging state-backed financial firms to support fund raising by stronger developers, it has so far refrained from issuing specific orders, according two separate sources.

Officials at two state banks and three state-backed asset managers said they have been trimming their holdings of property bonds since early this year despite several rounds of regulatory "window guidance" - verbal instructions from regulators to mainly Chinese companies - they received to support the sector.

All the sources declined to be identified for this story due to the sensitivity of the matter.

The PBOC and the China Banking and Insurance Regulatory Commission did not respond to Reuters requests for comment.

Market pessimism

While banks rapidly expanding loan exposure to developers would be a moral hazard for Beijing, which unveiled policies to rein in ballooning leverage two years ago, the authorities this year have guided strong builders to also issue onshore bonds to restore normalcy in fund-raising activities.

Loans granted by Chinese banks to developers in July dropped 36.8 per cent year on year, while capital raised from offshore bond markets plunged 200 per cent, according to Reuters calculations of data from the National Bureau of Statistics.

Onshore bond issuance in July, however, rose 4.2 per cent from June to 32 billion yuan (S$6.5 billion), according to researcher CRIC. Top issuers during the month were mostly state-owned or state-backed developers, including China Vanke and China Jinmao.

The issuance of onshore bonds is expected to rise - stock prices of developers and some of their bonds rebounded last week after media reported that Beijing would guarantee new onshore bond issues by a few, better-quality private firms.

As part of that move, Longfor Group Holdings on Tuesday (Aug 23) announced a bond offering of up to 1.5 billion yuan, and there are expected to be more in the coming days.

Chinese financial firms are typically major subscribers to these new offerings by local companies. This time, however, some of them are not looking to buy new notes even from developers that have relatively better balance sheets.

"We cannot afford riding out the volatility before maturity. It will mess up our books," said a credit analyst with a Shanghai-based and state-backed asset manager, talking about interest in new bonds from developers.

"Pessimism has grabbed the market... anything related to property is a no-go," said the credit analyst, who declined to be identified.

Some developers are also finding that state reassurances on stabilising the sector do not necessarily translate into more bank funding, as they scramble to finish apartment construction to placate home buyers threatening to stop paying mortgages.

An industry source close to developers said issuing bonds now is not easy as it is difficult to find buyers and many investors are trying to sell their holdings. Banks also may not have enough purchase quota for all the issuers, the source added.

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