Stock and bond prices of several benchmark Chinese real estate developers were overall up today, Nov. 10, on a widespread rumour that the People’s Bank of China (PBOC) had discussed at a meeting yesterday potential lifting of restrictions on the current “three red lines” policy, said buysiders. Continue reading for our Asia Core Credit team's reporting and legal and financial analysis on Chinese real estate stocks and request a trial for access to hundreds more stressed, distressed and performing credits.
Benchmark names like Country Garden jumped about seven points today with its $700 million 4.75% due July 25, 2022s indicated at 93 while Sunac China Holdings’s offshore bonds gained 10 points. Yuzhou’s $350 million 6% due Jan. 25, 2022s also jumped 8 points to 63. Shares of Shimao Group and China Aoyuan also traded up by close to 20%.
Prices were also supported by the news
reported by official Securities Times that domestic bond market regulator the National Association of Financial Market Institutional Investors said at a meeting yesterday that it will potentially grant new interbank bond issuance quotas to some property developers.
The rumor today, which originated from a widely circulated screenshot of an unidentified online chat, purportedly shows that following latest discussions of the PBOC, loans applied for the use of mergers and acquisitions (M&A) by real estate developers will no longer be included in the calculation of the government’s “three red lines” on controlling developers’ debt leverage.
In a move that will likely improve the cash flow of property companies, domestic banks may increase their quotas for project loans and personal mortgages and also extend the maturity of existing project loans or waive any downgrade-related loan covenants. The PBOC had also asked other major banks to expedite the approval process for mortgages that were applied more than five months ago.
Buyside sources noted that the potential exclusion of M&A loans from the scope of the “three red lines” policy could encourage state-owned enterprises to acquire assets from private real estate developers, which would allow private enterprises to shore up their liquidity from asset disposals.
The rumor on the potential PBOC policy easing also followed other more positive news, a buysider and a broker noted, including a report in Securities Times on Wednesday which said China is likely to ease controls for domestic companies to issue local currency bonds soon to prevent further deterioration in their financing. The easing would centre on the interbank market, and the policy signal was sent by authorities at a meeting Tuesday between developers and the National Association of Financial Market Institutional Investors, which is under the central bank.
Also on Wednesday, Goldman Asset Management was reported buying up Chinese real estate debt even as other investors shy away, information detailed in a Bloomberg
interview with Goldman’s Angus Bell, a member of the unit’s portfolio management team who reckons the market is overestimating the contagion risk.
The more positive news followed an earlier explicit assertion on Nov. 8 by the U.S. Federal Reserve that what happens in China’s property industry has potential to impact global markets and world economic growth.