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Global Times

Cash-strapped developers get access to refinancing

Global Times

Regulators determined to propel growth of real estate sector: expert

By GT staff reporters Published: Nov 28, 2022 11:19 PM

China's securities regulator announced on Monday the resumption of mergers and acquisitions (M&As) by real estate developers and refinancing by the listed developers, among newly announced five measures that take effect immediately, in an attempt to invigorate the slumped property sector.

The fresh move, adding to a flurry of recent government actions to stabilize the housing market and the economy at large, is meant to let listed developers use the capital market to ease their funding woes, market observers said. It could signal a turn for the better in the housing market and overall economic activity.

In a late-night statement, the China Securities Regulatory Commission (CSRC) said that stable and healthy development of the country's housing sector are closely related to financial market stability and economic growth.

The securities regulator vowed to support the implementation of plans to improve premium property developers' balance sheets, and help the housing market to revive dormant assets, prevent financial risks, and steadying macroeconomic fundamentals.

The CSRC outlined five specific measures that apply to the housing market, effective immediately.

The announcement was a follow-up to a pro-housing policy address delivered by CSRC Chairman Yi Huiman at the Financial Street Forum 2022 in Beijing last week.
The new measures include the resumption of M&A deals and supporting financing by real estate developer, which allows for eligible developers to list their shares under reorganization plans.

The funds raised will have to be used by the concerned developers in outstanding property projects, the replenishment of working capital and debt repayments, read the statement.

The funds can't be tapped for land auctions or new projects development.

The housing market is concerned with its outstanding assets, which suggests that "idle land and unfinished buildings will top the agenda in real estate bailouts", while expansion of property projects will come to a halt, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Monday.

Refinancing by listed developers was also reinstated, enabling them to fund affordable housing projects. And, the measures include a revision of developers' overseas listings, specifically in Hong Kong. Under the new measure, H-share firms, whose principal business is real estate, can resume refinancing.

Additionally, the securities regulator announced the launch of a real estate private equity investment fund trial.

The CSRC is working with the fund industry association to draft rules on real estate private equity investment fund filing, the China Securities Journal reported on Monday. The rules would be rolled out as soon as possible, according to the report.

The announcement is the "third arrow" in the quiver of the regulators to revitalize the housing market, in addition to the previous two rounds of bailouts that featured loan extension and bond financing, according to Yan Yuejin, research director at Shanghai-based E-house China R&D Institute.

The equity financing measures could prompt investors to make long-term commitments to developers and avoid the dilemma of those firms having to make bond repayments, Yan told the Global Times on Monday.

The new CSRC announcement came on the heels of a 16-point notice jointly released by the central bank and the banking and insurance regulator on Wednesday. It called for keeping bond financing basically stable, supporting premium developers in bond financing which have short-term funding difficulties.

After the market closing on Friday, the central bank announced a 25-basis-point cut in reserve requirements for financial institutions, in a move to ease liquidity woes that were hurting the flagging housing market. The cut to come into force on December 5 is intended to release liquidity of around 500 billion yuan.

Listed developers again have access to refinancing, putting them back on track for ensuring the delivery of buildings. Also, top real estate firms are expected to carry out M&As and restructure the property sector, Dong said.

The use of equity financing to meet the funding needs of real estate firms also attests to the role of the capital market as an underpinning of the real economy, he added.

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