China’s stricken property market gets a boost as government is set to guarantee bonds of some private developers

Longfor Group will sell an onshore bond of up to US$250 million next week, guaranteed by state-owned China Bond Issuance
Country Garden and Cifi will issue similar bonds supported by the government soon, sources say

China property

Iris Ouyangin Shenzhen

Published: 9:17pm, 16 Aug 2022

Why you can trust SCMP

China’s government has instructed a state-owned credit enhancement company to provide guarantees to a number of private property developers issuing bonds, giving them a leg-up to raise capital during a debt crisis that has hobbled the industry for the last year.

First up is Chongqing Longfor Corporate Expansion Limited, a unit of Longfor Group Holdings, which will issue yuan-denominated notes worth between 1 billion yuan (US$147 million) and 1.7 billion yuan on August 24, according to a term sheet seen by the South China Morning Post.

The full amount of the bond will have “unconditional, irrevocable joint-liability guarantees” from state-owned China Bond Issuance, the country’s first professional credit enhancement institution, established in 2009, according to the term sheet.

The notes will be priced with a coupon between 3 per cent and 4.3 per cent, and the funds will be used for unspecified project construction, the repurchase of offshore bonds and payment of offshore debt, the Post has learned.

Several other property companies, including Country Garden Holdings and Cifi Holdings, will also be supported by the guarantees for their onshore bond sales, which are expected soon, according to sources. Sino-Ocean Group, Seazen Holdings and Gemdale Corporation are also likely to be among them, the sources said.

07:21

Growing anger over China’s unfinished ‘rotten tail’ buildings: ‘We really need this home’

The fresh state support is seen as an upgrade from previous measures to boost investor confidence in the onshore bonds of home builders in China’s troubled US$2.7 trillion property market.

After a succession of bond payment extensions and defaults since China Evergrande Group’s debt problems first rocked the sector in August last year, the offshore primary market remains shut for many private players. Lockdowns and other tough Covid-19 restrictions in mainland China are further hampering sales amid weak consumer sentiment.

The crisis in the real estate market is increasingly spilling over to the financial system, putting some of the largest banks in China at risk. Buyers of units in at least 300 projects across 91 cities recently resorted to boycotting their mortgage payments in protest at stalled construction.

Country Garden is discussing the details of its planned bond issuance with regulators, a source close to the company said on Tuesday, adding that the developer will issue an announcement soon.

“The company is having smooth communications with the regulatory authorities, and believes that they will further support selected private developers,” Cifi said in an emailed reply. “The company will update investors on any material development.”

The other companies did not reply to phone calls and emails from the Post.

Nomura views the move to guarantee the bonds as an “enhanced form of policy support from the previous CRMW [credit risk mitigation warrants] structure”, a credit-risk hedging tool to support onshore bond issuance used previously.

Country Garden, Longfor Group Holdings and Midea Real Estate Holding issued yuan-denominated bonds in May that were supported by either credit default swaps or CRMW.

“While this is no doubt positive for near-term sentiment, we would need to track the eventual issuance sizes and see if such support will persist,” said Nomura analyst Iris Chen in a note on Tuesday.