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Chinese developers rally over prospects for additional funding

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(Bloomberg) — Chinese developers bounced back Thursday as more signs emerged of government policy support for the debt-ridden sector.

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Builders’ Bloomberg Intelligence stock gauge climbed nearly 7.25%, its highest in 10 days, with Country Garden Holdings Co. rose 20%. Gains in real estate company dollar bonds were more selective, with investment grade builder Longfour Group Holdings Ltd holding Country Garden and Greentown China Holdings Ltd as the main outperformers. Sector debt and equity pulled back last week after rising in early November. ,

China’s state-owned mega banks are offering at least 270 billion yuan ($38 billion) in new credit to property developers, including Country Garden and Longfour, in a bid to ease the turmoil in the real estate market. It comes as builders issue scheduled bonds under a state-guaranteed program first revealed in August.

Meanwhile, the People’s Bank of China and the China Banking and Insurance Regulatory Commission on Wednesday called for support in the real estate market and reiterated a pledge to keep funding stable. The government also indicated that more monetary stimulus – including a reduction in banks’ reserve requirements – is on the table.

“The core of the policy is to build a firewall between developers who have already defaulted and those who haven’t,” said Li Kai, founder of Beijing Shengao Fund Management Co. The support is not aimed at them, but it will boost their bond prices anyway.”

Developers have defaulted on a record amount of dollar bonds this year, but land delinquencies have plummeted this year as many companies struck deals with bondholders about deferrals.

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“Whether developers who default offshore avoid onshore defaults depends primarily on their cash flows rather than policy help,” Lee said.

– With assistance from Loretta Chen.

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