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

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HONG KONG: Stocks and bonds of Chinese property developers extended their gains through Thursday on hopes that a series of recent government measures would help ease the funding crunch in the struggling sector, even as a other 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.

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.

These accounts are currently controlled by municipal governments, with no central oversight, and withdrawals have been tightened following difficulties in the sector.

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

Citi agreed that improving mortgages and potentially easing escrow accounts “could help avoid the worst-case scenario,” adding that it expects the news to have a positive impact on stock prices.

But he warned there were still short-term overhangs, including an expected decline in first-quarter sales and a few more developers looking for offshore bond extension.

By noon, the Hang Seng Mainland Properties index rose 5%, up for the third day in a row, led by real estate companies deemed to be facing liquidity pressure.

Sunac China and Logan Group jumped over 11%, Shimao Group and Kaisa Group jumped 10.7% and 10% respectively.

Sunac’s April 2024 dollar bond rose to 67.5 cents on the dollar, according to data from Duration Finance, from 41.5 a day ago. Its three yuan bonds also jumped 20% in the early hours of Asia, 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 China Aoyuan, however, fell earlier in the day after the developer planned to waive principal and interest payments on all of its offshore debt and worked on a restructuring proposal. Stocks stabilized at midday.

Regulatory restrictions on borrowing have plunged the sector into crisis, as pointed out by China Evergrande Group, which was once China’s top-selling developer but is now the world’s most indebted real estate company 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 USD = 6.3432 Chinese Yuan)

(Reporting by Clare Jim; Editing by Himani Sarkar)

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