The worst may be over for some of China’s most cash-strapped firms, as signs grow that their access to financing is improving with Beijing’s pledge to support the private sector and alleviate a housing crisis.
(Bloomberg) — The worst may be over for some of China’s most cash-strapped firms, as signs grow that their access to financing is improving with Beijing’s pledge to support the private sector and alleviate a housing crisis.
Recent developments point to a notably better funding environment for private firms: a top developer is preparing to repay its dollar debt, a major conglomerate is working toward securing a credit line and a mid-sized builder plans to sell its first state-guaranteed bond.
They are the latest evidence of authorities’ policy pivot toward reviving growth, which requires a healthier private sector to generate the bulk of jobs in China. The return of economic pragmatism, from the lifting of pandemic controls to friendlier gestures to Western countries, has improved investor confidence and sent China’s stocks and currency rallying.
“The easier path for private developers to issue bonds shows stronger government support in the sector, and the severe growth pressure is behind the current development,” said Gary Ng, senior economist at Natixis SA. “It is unlikely that China’s property developers will return to their golden age, but the liquidity situation will improve.”
In a welcome development in China’s default-stricken offshore credit market, Country Garden Holdings Co. has prepared funds to repay dollar bonds due this month, Bloomberg News reported Tuesday, citing people familiar with the matter.
The country’s top developer by sales is facing its biggest repayment test in months in January, when nearly $700 million of dollar bond principal and coupons come due, according to Bloomberg-compiled data.
Country Garden’s stock has tripled in value since hitting a record low in late October, leading a rally among Chinese developers amid a quickening drumbeat of policy moves aimed at easing the industry’s liquidity crunch. The company has embarked on an aggressive fundraising campaign since July that includes three additional share sales and yuan bonds guaranteed by state-backed entities.
Meanwhile, a key subsidiary of Fosun International Ltd., one of China’s largest private conglomerates, is close to receiving a long-awaited credit line from some of the country’s biggest state-owned lenders, according to people familiar with the matter.
Shanghai Fosun High Technology Group Co. is in advanced talks for an onshore loan totaling about 12 billion yuan ($1.8 billion) with lenders led by Industrial & Commercial Bank of China Ltd., according to the people, who asked not to be identified as they’re not authorized to speak publicly.
The unit also plans to issue no more than 1 billion yuan of a 180-day short-term note in China’s interbank market, according to a filing. Bank of Shanghai Co. will provide credit risk mitigation warrants for the issuer.
Backed by billionaire Guo Guangchang, Fosun has rallied back in credit markets in recent months after it unveiled a slew of planned asset sales and weighed potentially billions of dollars in other deals. The group’s dollar bonds were sold off last year as concerns mounted over its liquidity strength.
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Help is also on the way for other private firms, especially those in the debt-laden property sector.
A domestic unit of mid-sized developer Agile Group Holdings Ltd. is said to plan to sell by mid-January its first yuan bond under the same state-guaranteed issuance program that Country Garden is in, while a unit of industry peer Longfor Group Holdings Ltd. is applying to offer new yuan bonds for debt repayment and project construction.
A key driver of the breathtaking rally in Chinese stocks in recent months, the country’s developer shares have surged 70% from a late October low, according to Bloomberg Intelligence gauge.
Chinese junk dollar bonds, which are dominated by real estate firms, have also staged a comeback. A Bloomberg index tracking the sector has climbed to its highest in a year.
“However, more measures such as lowering mortgage borrowing and down payment ratio, relaxing buying restrictions, and some measures to providing more comfort to mitigate completion risk might be needed,” said Bloomberg Intelligence credit analyst Dan Wang.
–With assistance from Kevin Kingsbury.
(Updates with details of Fosun unit’s local bond plan)
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