China eases crackdown on real estate market as offshore corporate bond defaults hit new high

BEIJING (BLOOMBERG) – China is stepping up support for ailing real estate sector as growing stress in the industry threatens to worsen the economic downturn.

December is poised to be a record month for Chinese offshore company defaults after missed payments by indebted companies including China Evergrande Group and Kaisa Group Holdings. Chinese companies have defaulted on a record US $ 3.8 billion (S $ 5.2 billion) in offshore bonds since the start of the month, according to data compiled by Bloomberg.

The previous monthly record was set in January when Chinese borrowers failed to repay $ 2.7 billion of these notes.

A month that saw Evergrande and Kaisa officially labeled in default, December saw a precarious rise in Chinese junk bonds threatened by heightened anxiety over the financial health of other companies such as Shimao Group Holdings and Guangzhou R&F Properties as a crisis. liquidity triggered by a government crackdown on excessive borrowing by developers is having an impact on the sector.

This year, Chinese borrowers have defaulted on $ 13.3 billion in offshore bonds, with real estate companies accounting for half of the total, according to data compiled by Bloomberg.

More credit risk simmering, with January expected to be an even busier month for maturities. Chinese developers are expected to repay or refinance around $ 6 billion in bonds by then, according to data compiled by Bloomberg.

Guangzhou R&F is asking holders of a $ 725 million note due Jan. 13 to extend the maturity date by six months and offers to buy back some of the debt at a discount. If the proposals are not supported, the company has said it may not be able to refund the note in full.

A record rate of defaults and downgrades for Chinese borrowers recently pushed unwanted dollar bond yields to an all-time high. Such an increase in borrowing costs has shut down offshore refinancing channels for Chinese companies, and an HSBC report last week said this financing would only reopen to the highest quality Chinese real estate developers in the second. semester 2022.

Now authorities are encouraging banks to finance project acquisitions from struggling developers and pushing financially sound real estate companies to make such purchases, the central bank-backed Financial News reported on Monday (December 20th).

China is also providing credit support to an economy suffering from the housing crisis, with national banks lowering borrowing costs on Monday for the first time in 20 months.

The move follows steps the People’s Bank of China took earlier this month to reduce the amount of liquidity banks must hold in reserve, freeing up 1.2 trillion yuan (S $ 257 billion) in long-term funds. cheap for lenders.

Regulators have relaxed the crackdown on leverage in the real estate sector in recent weeks, for example by encouraging stronger real estate companies to tap the onshore interbank bond market for financing. Lenders will be urged to help “quality” developers acquire projects from large developers facing difficulties, the Financial News report said, citing an opinion from the country’s central bank and banking regulator.

The PBOC did not immediately respond to a fax asking for comment.

The report also says that the PBOC and the country’s state asset watchdog recently held a meeting with large private and public real estate companies to encourage them to acquire quality projects from struggling developers. Financial authorities have asked lenders not to “blindly” call back or cut loans to struggling developers, he added.