Chinese property stocks and bonds rally on hopes government measures will help liquidity

HONG KONG, Jan 20 (Reuters) – Stocks and bonds of Chinese property developers extended gains through Thursday on hopes that a series of recent government measures would help ease the funding crunch in the struggling sector. , even as another promoter 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 business and household loans for a second consecutive month. Read more

Sources told Reuters that policymakers are also drawing up national rules to make it easier for developers to access funds from sales still held in escrow accounts. Read more

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Better access to stranded funds would improve short-term liquidity and help developers buy time “to pay off debt until real estate sales show a meaningful recovery,” expected in late March or April, brokerage Jefferies said. .

Citi agreed that improving mortgages and the potential easing of escrow accounts “could help avoid the worst-case scenario”, but warned that there were still short-term overhangs, including an expected drop in sales at the first quarter and a few other developers looking for offshore bond extensions.

The Hang Seng Mainland Properties Index (.HSMPI) closed up 4.6%, rising for the third day in a row, led by property companies seen as facing liquidity pressure.

Sunac China (1918.HK) jumped 15.2%, while Kaisa Group (1638.HK) jumped 13.3%. Shimao Group (0813.HK) and Logan Group rose 12.1% and 10.1% respectively.

Sunac’s April 2024 dollar bond rose to 63.5 cents to the dollar in late afternoon Asia, according to data from Duration Finance, from 41.8 a day ago. Its three yuan bonds also jumped 20% in the morning, prompting temporary suspensions.

Bonds rallied even as Fitch downgraded Sunac from “BB-” to “BB-“, with a negative outlook, citing diminishing financial flexibility amid high financial market volatility.

Sunac has transferred 4.25 billion yuan ($670 million) to pay its two onshore debts falling due within the next three weeks, a person familiar with the company said.

Sunac declined to comment.

Shares of Guangzhou-based China Aoyuan (3883.HK) also wiped out early losses to climb 3.2%, even though the developer said Wednesday night that it plans not to make principal payments and interest on all of its offshore debt, and was working on a restructuring. proposal.

Financial media Cailianshe reported on Thursday that the provincial and municipal governments where Aoyuan is based have stepped in to resolve its debt crisis, and the developer may sell its major shareholder position to a state-owned company.

Regulatory restrictions on borrowing have plunged the sector into crisis, as pointed out by China Evergrande Group (3333.HK), which was once the biggest-selling developer in China but is now the most indebted real estate company. in the world with liabilities of $300 billion.

In recent months, Beijing has taken steps to restore stability, including making it easier for public developers to buy up troubled assets from indebted private companies, a source said.

“Overall, we’re seeing improved high-level policy clarity since December as downside protection, and impending action to protect the real estate sector will bring a healthier 2022 than 2021,” Citi said in its statement. report.

($1 = 6.3432 Chinese Yuan)

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Reporting by Clare Jim Editing by Himani Sarkar and Mark Potter

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