China property shares, bonds rally on hopes govt measures will aid liquidity

  • Markets
  • Thursday, 20 Jan 2022

HONG KONG: Stocks and bonds of Chinese property developers stretched their gains into Thursday on hopes a slew of recent government measures would help ease a funding squeeze in the embattled sector, even as another developer warned of default.

Beijing unexpectedly lowered borrowing costs on its medium-term loans for the first time since April 2020, and cut its benchmark lending rates for corporate and household loans for a second straight month.

Sources have told Reuters that policymakers were also drafting nationwide rules to make it easier for developers to access funds from sales still held in escrow accounts.

These accounts are currently controlled by municipal governments, with no central oversight, and withdrawals have been tightened in the wake of the sector's woes.

Better access to escrow funds would improve the short-term liquidity and help developers buy time "to meet their debt repayments until property sales show meaningful recovery", expected in late March or April, brokerage Jefferies said.

Citi agreed that improving mortgage and potential easing of escrow accounts "could help avoid the worst scenario", adding it expects the news to have a positive impact on share prices.

But it cautioned there were still short-term overhangs including expected sales decline in the first quarter and a few more developers seeking offshore bond extension.

By noon, the Hang Seng Mainland Properties Index rose 5%, up for a third straight day, led by property firms deemed facing liquidity pressure.

Sunac China and Logan Group jumped more than 11%, Shimao Group and Kaisa Group surged 10.7% and 10% respectively.

Sunac's April 2024 dollar bond rose to 67.5 cents on the dollar, data from Duration Finance shows, versus to 41.5 a day ago. Its three yuan bonds also surged 20% during Asia early hours, prompting temporarily suspensions.

The bonds rallied even as Fitch downgraded Sunac to "BB-" from "BB", with a negative outlook, citing decreasing financial flexibility amid high capital-market volatility.

Sunac has transferred 4.25 billion yuan ($670 million) to pay for its two onshore debts coming due in the next three weeks, a person close to the company said.

Sunac declined to comment.

Shares in China Aoyuan, however, fell earlier in the day on news the developer plans not to make principal and interest payments for all its offshore debt, and was working on a restructuring proposal. Shares steadied by noon.

Regulatory curbs on borrowing have driven the sector into crisis, highlighted by China Evergrande Group which was once China's top-selling developer but is now the world's most indebted property firm with liabilities of $300 billion.

In recent months, Beijing has taken steps to restore stability, including making it easier for state-backed developers to buy up distressed assets of indebted private firms, according to a source.

"Overall, we find improved top-level policy clarity since December as a downside protection, and impending measures to protect the real estate sector will bring a healthier 2022 than 2021," Citi said in its report. - Reuters

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