Longfor taps bond guarantee plan, sending stocks soaring amid hopes that China’s financial lifeline can save more property developers
- Longfor’s application to issue a 20 billion yuan midterm note was accepted by the National Association of Financial Market Institutional Investors (Nafmii)
- That made Longfor Group Holding the first among China’s private-sector property developers to tap the central bank-backed bond guarantee programme
Longfor Group Holdings Limited’s shares jumped in Hong Kong trading, after the property developer successfully tapped a bond guarantee scheme by the Chinese government for funds.
Shares of the Beijing-based developer soared by 29 per cent to close the day at a three-week high of HK$18.20.
Altogether, the Nafmii plan announced last week offers 250 billion yuan of financial support for developers to ease their liquidity crunch. The plan also provides credit enhancement by the China Bond Insurance Corporation at an annual cost of 0.8 per cent, half of the normal fee.
“We are positively surprised by the prompt reaction of Nafmii, which indicated high priority [placed on] the scheme by regulators,” said Raymond Cheng, managing director of CGS-CIMB Securities. “Longfor [took] 8 per cent of the 250-billion yuan program, which is much higher than expected. This suggests that most of the notes [may be] likely to go to private developers, versus the expectation of 20 to 30 per cent only.”
Country Garden said it was withdrawing its debt from ratings by S&P Global Ratings and Fitch Ratings, after the two credit-rating agencies downgraded the creditworthiness of several private developers including Country Garden and CIFI.
Nafmii’s “bond financing program demonstrates the central government’s stance to stabilize the sector amid weak market sentiment, which should help stop the downward spiral in confidence that could affect developers of higher credit quality,” said S&P’s director Ricky Tsang.
The program will provide much needed liquidity to the surviving developers, though the exact size of funding to each developer is not yet know and may only offer modest relief to their liquidity, he said in a written response today to the Post.
“Furthermore, not every developer is likely to pass the eligibility test for the program. These supportive credit facilities usually come with pledge of assets, mainly investment properties, which could prove difficult for some developers,” he added.
Nevertheless, Tsang warned that the increase in such secured funding could in turn worsen the subordination risks for the offshore USD bondholders, while Cheng noted that a recovery in sales of those real estate companies is still the key factor to watch and risks remain due to uncertainty led by the Covid-19 pandemic in the short term.