China’s exclusive central bank to offer cheap loans to support developers’ bond sources

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HONG KONG/SHANGHAI: China’s central bank will provide cheap loans to financial firms to buy bonds issued by property developers, four people with direct knowledge of the matter said, the strongest policy support yet for the crisis-hit sector .

The People’s Bank of China (PBOC) hopes the loans will boost market sentiment towards the highly indebted real estate sector, which has lurched from crisis to crisis over the past year, and save some private developers, the people said. asked not to be named because they were not authorized to speak to the media.

In recent weeks, China has ramped up support to the real estate sector, a pillar that accounts for a quarter of the world’s second-largest economy. Many developers defaulted on their debt obligations and had to halt construction.

The nation’s largest banks pledged at least $162 billion in credit to developers this week.

The PBOC loans are expected to be much lower than the benchmark rate and will run in the coming weeks, giving financial institutions more incentive to invest in onshore bonds from private developers, two sources said.

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Terms such as the interest on the loans were not immediately known.

The PBOC is also establishing a “white list” of quality and systemically important developers who would receive wider support from Beijing to improve their balance sheets, two of the sources said.

The central bank did not immediately respond to a request for comment on the planned measures.

At least three private developers — including Longfor Group Holdings Ltd, Midea Real Estate Holding Ltd and Seazen Holdings — were given the go-ahead this month to raise a total of 50 billion yuan ($7 billion) in debt. If there wasn’t enough investor demand for such new bonds, the PBOC would likely step in to provide liquidity through the credit facility for the remainder of the issue, one of the four people and another source said.

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FROM CRACKDOWN TO AGGRESSIVE SUPPORT

Re-lending is a targeted policy tool that the PBOC usually uses to provide cheap loans to banks to support the slowing economy, as the central bank has limited room to cut interest rates due to concerns about capital flight.

In recent months, the PBOC has used the credit facility to support industries including transportation, logistics and technology innovation that were hard hit by the COVID-19 pandemic or favored by long-term government policies.

Beijing’s aggressive support for the real estate sector marks a reversal from the crackdown that began in 2020 against speculators and indebted developers in a broad effort to reduce financial risks.

As a result of the crackdown, property sales fell and prices plummeted, developers defaulted on bonds and construction halted. The building freezes have angered homeowners who have threatened to cut off mortgage payments.

The PBOC also plans to provide 100 billion yuan ($14 billion) in M&A financing facilities to state-owned asset managers, primarily for their acquisitions of real estate projects from troubled developers, two sources said.

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

Among other recent official support, China’s interbank bond market regulator said this month it would broaden a program to support about 250 billion yuan ($35 billion) in debt offerings by private companies.

Much of Beijing’s past support has focused on state-owned developers.

Yi Huiman, chairman of China’s securities regulator, said Monday the country should implement plans to improve the balance sheets of “good quality” developers.

Fitch Ratings said on Thursday private Chinese developers face higher liquidity risk, in terms of debt structure with greater near-term pressures, than state-owned companies as banks and other creditors become reluctant to lend.

($1 = 7.1609 Chinese Yuan Renminbi)

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