• Mon. Dec 4th, 2023

    Bonds of Chinese Real Estate Developers Surge as Beijing Considers List of Eligible Firms

    ByNuala Hafner

    Nov 21, 2023
    Bonds of Chinese Real Estate Developers Surge as Beijing Considers List of Eligible Firms

    Chinese developers saw a significant increase in their bond prices and share values after reports surfaced that the authorities were in the process of drafting a list of 50 real estate firms that would be eligible for financing. The move was seen as Beijing’s latest effort to support the embattled property sector.

    The Bloomberg gauge of Chinese developer stocks witnessed a surge of up to 7.6% in early trading, marking its largest increase since September. Leading the sector’s rise was Sunac China Holdings Ltd., which saw a rally of up to 27%, closely followed by Seazen Group Ltd. and Agile Group Holdings Ltd., both jumping more than 10%.

    The introduction of a so-called white list is expected to alleviate fears of further contagion in China’s property sector, which has experienced funding troubles even among state-backed builders. However, it remains uncertain whether this move alone will be sufficient to reverse the industry’s prolonged slump, as the white list does not constitute a directive for banks to extend loans to real estate firms.

    While the measure could boost confidence, JPMorgan Chase & Co. analyst Karl Chan cautions that it is unlikely to prevent future developer defaults. He suggests that banks may still be hesitant to offer support if non-state-owned enterprise property sales continue to deteriorate, as the white list may only serve as a reference.

    According to anonymous sources familiar with the matter, companies like China Vanke, Seazen, and Longfor were mentioned in a draft version of the funding list. The list encompasses both private and state-owned developers, aiming to guide financial institutions in their decision-making regarding support for the industry through bank loans, debt, and equity financing. The full list of developers included in the draft has yet to be disclosed.

    The positive response to the news was also evident in the bond market, with China Vanke Co. experiencing gains. Their 3.5% notes due in 2029 rose by 2.3 cents to 60.7 cents on the dollar. The notes of Longfor and Seazen also advanced, although they still trade at distressed levels.

    During a gathering with top financial regulators, China’s major banks, brokerages, and distressed asset managers were instructed to meet the “reasonable” funding needs of property firms. The government statement did not explicitly mention the white list but emphasized the importance of treating both private and state-owned developers equally in lending practices.

    Despite these efforts, some investors remain skeptical about the ability of these measures to reverse the sector’s downward trajectory. Andrew Zhu, a fund manager at Hainan Shire Asset Management Co., highlighted the importance of verifying the presence of private investors on the list and the amount of funding provided, as banks with low risk appetite may not offer substantial support.

    FAQs

    1. What is the purpose of the white list drafted by Chinese authorities?
    The white list aims to guide financial institutions in determining which real estate firms are eligible for financing.

    2. Will the white list effectively halt the industry’s slump?
    It is uncertain if the white list alone will be enough to reverse the long-standing slump in the Chinese property sector.

    3. Which companies were mentioned in the draft of the funding list?
    China Vanke, Seazen, and Longfor were reportedly included in the draft list, although the full roster is unknown.

    4. How did the bond market react to the news?
    Bonds of Chinese developers, such as those of China Vanke, saw price increases following reports of the white list.

    5. Can the measures implemented by Beijing guarantee a recovery in the property sector?
    Some investors remain doubtful whether the measures will be able to reverse the downward trend in the Chinese property sector.