China Seen Offering Cheap Loans to Boost Developers' Funds

China’s central bank will offer cheap loans to financial firms so they can buy onshore bonds issued by property developers, sources have said.

The People’s Bank of China loans will go through its relending facility. They are expected to be at much lower rate than the benchmark interest rate and likely to come through in coming weeks, the sources said.

The PBOC hopes the loans will boost market sentiment toward the heavily indebted sector and rescue a number of private developers, according to four sources, who asked not to be named as they were not authorised to speak to the media.

The lower interest rate would give banks more incentive to invest in private developers’ onshore bonds, two of the sources said.

The news comes after the country’s biggest banks pledged at least $162 billion in credit to developers – the latest in a ramp of significant moves to support the sector, which has been in a state of crisis for at least a year.

China has stepped up support in recent weeks for the property sector because it accounts for about a quarter of the national economy. Many developers such as China Evergrande have defaulted on their debt obligations and have been forced to halt construction.

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The PBOC is also drafting a “white list” of good-quality and systemically important developers that 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, Midea Real Estate Holding 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 from investors for such 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.

Hong Kong’s Hang Seng Mainland Properties Index was up as much as 4.7% on Friday, adding 1 percentage point after the latest news on the PBOC moves was reported.

China’s top developer by sales, Country Garden, was up 10%, CIFI Holdings was up more than 5% and Longfor nearly 4%.

From Crackdown to Aggressive Support

Relending is a targeted policy tool the PBOC typically uses to make low-cost loans to banks to support the slowing economy, as the central bank faces limited room to cut interest rates on concerns about capital flight.

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

Beijing’s aggressive support for the property sector marks a reversal from a crackdown begun in 2020 on speculators and indebted developers in a broad push to reduce financial risks.

As a result of the crackdown, though, property sales and prices fell, developers defaulted on bonds and suspended construction. The construction halts have angered homeowners who threatened to stop mortgage payments.

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

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

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

Much of Beijing’s previous support targeted state-owned developers.

Yi Huiman, chairman of China’s securities regulator, said on Monday the country must 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 short-term maturity pressure, than state-owned peers as banks and other creditors are becoming reluctant to lend.