China Property Aid Seen Mostly Helping Yet-to-Default Builders

Published 14 November 2022, 04:51:44.968 GMT

(Bloomberg) -- China’s property rescue package is likely to mostly benefit private developers that have yet to default, widening the divergence in the industry, according to those following the sector.

The “authorities’ latest policy package is the most significant easing effort to support the property sector to date,” but it will most benefit “the few remaining private, yet-to-default developers,” Leonard Law, senior credit analyst at high-yield research firm Lucror Analytics in Singapore, wrote in a research note.

Property stocks and bonds jumped Monday on optimism over the latest efforts to bolster the real-estate industry, but the rally in debt has largely been limited to higher-quality companies such as state-backed China Jinmao Holdings Group Ltd. and some key beneficiaries of the latest guaranteed-bond-sales program including Country Garden Holdings, Longfor Group Holdings Ltd. and Seazen Group Ltd.

In contrast, dollar-denominated bonds of property developers that have already defaulted on their offshore debt, including China Evergrande Group and Sunac China Holdings Ltd., barely moved.

China’s real-estate sector has been roiled by a debt crisis since officials took steps starting in mid-2020 to limit a potential bubble in the industry, leading to a cash-flow crunch and a slump in sales. Developers have defaulted on a record $42 billion of offshore debt so far this year, according to data compiled by Bloomberg.

“The relaxation in financing will first make an impact on high-quality private developers,” said Li Gen, chief executive officer at Beijing BG Capital Management Ltd. For offshore bondholders, there’s no clear path for how onshore financing will trickle through to the offshore market, Li said.

By Lorretta Chen

--With assistance from Alice Huang.