China to give cheap loans to property firms

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China to give cheap loans to property firms

Four people with direct knowledge of the matter said that China's central bank will give cheap loans to financial firms for buying bonds issued by property developers, the strongest policy support for the crisis-hit sector.

The People's Bank of China PBOC hopes that the loans will increase market sentiment towards the heavily indebted property sector, which has lurched from crisis to crisis over the past year, and rescue a number of private developers, as they were not allowed to speak to the media, said the people who asked not to be named.

China has stepped up support for the property sector in recent weeks, a pillar accounting for a quarter of the world's second-biggest economy. Many developers were forced to halt construction because of their default on their debt obligations.

The country's biggest banks pledged at least $162 billion in credit to developers this week.

The PBOC loans, through its relending facility, are expected to be lower than the benchmark interest rate and will be implemented in the coming weeks, giving financial institutions more incentive to invest in private developers' onshore bonds, two sources said.

There were not immediately known terms, such as the interest rate on the loans.

The PBOC is drafting a white list of good-quality and systemically important developers that would receive more support from Beijing to improve their balance sheets, two of the sources said.

The central bank didn't respond to a request for comment on the planned measures.

Three private developers - including Longfor Group Holdings Ltd, Midea Real Estate Holding Ltd, and Seazen Holdings -- received the green light this month to raise a total of 50 billion yuan $7 billion in debt. If there were not enough demand for new bonds, the PBOC would likely step in to provide liquidity via the relending facility for the rest of the issuance, said one of the four people and another source.

The PBOC usually uses this tool to make low-cost loans to banks to support the slowing economy, as the central bank has limited room to cut interest rates on concerns about capital flight.

The PBOC has used the relending facility in recent months to support sectors like transport, logistics and tech innovation that were hard hit by the COVID-19 epidemic or are favoured by long-term state policies.

Beijing has aggressive support for the property sector after a crackdown on speculators and indebted developers in a bid to reduce financial risks in 2020.

The developers have defaulted on bonds and suspended construction because of the crackdown, which has resulted in property sales and prices falling. The construction halts have angered homeowners who threatened to stop mortgage payments.

PBOC plans to provide 100 billion yuan for M&A financing facilities to state-owned asset managers mainly for their acquisitions of real estate projects from troubled developers, according to two sources.

Chinese media reported on Monday that the central bank planned to provide 200 billion yuan in interest-free lending loans to commercial banks through the end of March for housing completions.

China's interbank bond market regulator said this month it would widen a programme to support around 250 billion yuan $35 billion of debt offerings by private firms.

On Monday, Chairman of China's securities regulator, Yi Huiman said the country must implement plans to improve the balance sheets of good developers.

Fitch Ratings said private Chinese developers face higher liquidity risk in terms of debt structure with greater short-term maturity pressure than state-owned peers, as banks and other creditors are reluctant to lend.