State-backed companies are coming to the rescue of embattled Chinese developers pushed to the edge of financial ruin by Beijing’s “three red lines” borrowing restrictions . Agile Group, one of the country’s top 20 home sellers, said it will sell its 26.7 per cent stake in a Guangzhou property joint venture for 1.84 billion yuan (US$300 million) to a unit of China Overseas Land & Investment (Coli). Hong Kong-listed Coli is a property arm of China State Construction Engineering, which is directly owned by the State-owned Assets Supervision and Administration Commission of the State Council . The Guangzhou-based developer said the deal “would [help] the group to meet its working capital requirements and future business development.” It comes after Shimao Group announced on Friday it had sold land in Shanghai to a company owned by the Shanghai municipal government. Agile is facing a growing pile of debts including US$1.1 billion in offshore notes due this year. State-owned Coli’s takeover would at least ease the pressure on Agile, which was downgraded by Moody’s last Tuesday to Ba2, and offer some liquidity to repay its US$500 million of offshore bonds coming due in March. The credit ratings company based its downgrade on the increased refinancing risk of Agile’s sizeable debt maturities. The three red lines, outlined by the central government in August 2020, define strict thresholds on borrowing. They are a liability-to-asset ratio excluding advance receipts of less than 70 per cent, a net debt-to-equity ratio of less than 100 per cent and a cash to short-term debt ratio of one. According to the rules, companies are allowed to borrow more from banks and increase their debt level by 5 per cent annually for each red line that they meet, subject to a maximum yearly increase of 15 per cent. The rule has been backdated to January 1, 2020. Many developers – even financially sound ones – have been reluctant to conduct mergers and acquisitions, fearing they might fail to meet the three red lines after absorbing the debts of their beleaguered peers. For example, Yuexiu Property, a unit of state-owned Guangzhou Yuexiu Holdings, dropped plans to buy China Evergrande’s headquarters building in Hong Kong. Sunac Holdings Group cancelled its planned buyout of First Services, the property management unit of troubled Modern Land. However, the central government recently decided to give cash-strapped property firms some breathing space. Policymakers plan to exclude debt raised by a developer to acquire distressed assets of another home builder when calculating their compliance with the three red lines, Cailianshe reported earlier in January. The easing of the three red lines has encouraged more M&A activity in the sector, which may explain why Agile is not the only developer to have been saved recently by a white knight in the form of a state-owned company. Shimao Group, founded by the developer Hui Wing Mau, said on Friday it had sold a plot of commercial land in Shanghai for 1.06 billion yuan (HK$1.3 billion) to a company owned by the Shanghai municipal government to reduce its debt. Meanwhile Liang Senlin, the chairman of China Cinda (HK) Holdings, a unit of one of the country’s biggest state asset managers, has joined Evergrande’s board as a non-executive director, according to a filing to the stock exchange on Sunday. Other recent measures designed to cut home builders some slack in the face of increasing defaults and liquidity problems include reducing borrowing costs. China’s one-year loan prime rate (LPR), the benchmark for corporate and household loans, was cut by 10 basis points to 3.7 per cent during the central bank’s January fixing last Thursday. The five-year LPR, used as the reference for mortgage lending, fell by 5 basis points to 4.60 per cent, the first reduction in nearly two years. A lower loan rate gives developers much-needed breathing room, as they face US$38.3 billion of offshore bond payments in the first six months of 2022. A cheaper mortgage rate – even by 5 basis points – attracts buyers who genuinely need a roof over their heads and rekindles transactions in a property market that has gone into deep freeze after five years of crackdowns.