Home News Exclusive: Some Chinese financiers cold shoulder Beijing’s property rescue call

Exclusive: Some Chinese financiers cold shoulder Beijing’s property rescue call

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Surveillance cameras installed near a residential building under construction in Shanghai, China, July 20, 2022. REUTERS/Aly Song

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HONG KONG/SHANGHAI (Reuters) – Some of China’s state-owned financial institutions feared the impact of such exposures on their balance sheets, responding to Beijing’s calls for aid to the struggling property sector. are rebelling. Said the problem.

Without explicit financial backing from Beijing, senior executives at some financial institutions are wary of engaging with underfunded developers and dealing with potential losses themselves later. two of the sources said.

Approving financial aid to struggling developers is a concern, two sources said, as employees who make poor loan and investment decisions are increasingly held accountable by authorities. It has become a matter.

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China’s property sector, which accounts for about a quarter of the economy, will struggle to complete projects that have gone from crisis to crisis since the summer of 2020.

Property investment, home sales and new construction are plummeting, with trouble terrifying potential buyers. read more

Reuters reported last week that China’s banking regulator was scrutinizing real estate sector lending by some local and foreign lenders amid a worsening debt crisis in the real estate sector, posing systemic risks. was reported to be evaluating read more

The reluctance of some Chinese lenders presents challenges and limited options for Beijing to help revive the sector.

Chinese authorities have held multiple closed-door meetings in recent weeks, during which other financial institutions, including banks and brokerage firms, have been encouraged to help developers raise capital, two people said. a source said.

The People’s Bank of China (PBOC) has been lobbying state-owned financial institutions to help more powerful developers raise money, but has so far refrained from issuing specific orders, another said. one source said.

Officials at two state-owned banks and three state-owned asset management firms have said they have held property bonds since the beginning of the year, despite several rounds of regulatory “window guidance” of verbal instructions from regulators, mostly to Chinese companies. said to be reducing sector.

Due to the sensitive nature of this story, we have refused to identify all sources.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC) did not respond to Reuters requests for comment.

market pessimism

A rapid increase in bank lending exposure to developers would be a moral hazard for Beijing, which two years ago announced policies to curb its ballooning leverage, but authorities are expected to resume normal financing activities this year. In order to restore the economy, we are guiding strong builders to issue onshore bonds as well.

Loans extended to developers by Chinese banks fell 36.8% year-on-year in July, while funds raised from offshore bond markets fell by 200% in July, according to Reuters calculations based on data from the National Bureau of Statistics (NBS). Diminished.

However, according to researcher CRIC, onshore bond issuance in July increased by 4.2% from June to 32 billion yuan.This month’s top issuers were mostly state-owned or backed developers, including China Vanke (000002.SZ) and China Jinmao (0817.HK).

Onshore bond issuance is expected to increase. Shares of developers and some of their bonds rallied after media reported last week that Beijing would guarantee new onshore bond issuances by a small number of higher-quality private companies. read more

As part of that move, Longfor Group Holdings (0960.HK) On Tuesday, it said it had launched a corporate bond offering of up to 1.5 billion yuan ($218.54 million). And expect more in the coming days.

Chinese financial firms are typically major subscribers to these new services by local businesses. But this time around, some are not willing to buy new bonds, even from developers with relatively strong balance sheets.

“We can’t afford to weather the volatility before maturity. said.

“As pessimism swept the market, analysis no longer works…anything related to real estate is banned,” said the credit analyst on condition of anonymity because he is not authorized to speak to the media. rice field.

Longfor declined to comment.

Huarong Asset Management Company, one of China’s four major state-owned bad debt managers, has been tasked with investigating stalled real estate projects, but many have overlooked it, according to the people involved in those decisions. officials said.

“We need reassurance that at least some of the funds will be repaid,” the official said, adding that banking sector regulators will visit their offices this month to assess asset risks. rice field.

Huarong did not respond to a request for comment.

Government reassurances on sector stabilization will not necessarily lead to bank funding as some developers rush to complete apartment construction to appease homebuyers who threaten to stop paying their mortgages. I have discovered that this is not necessarily the case.

An industry source close to the developer said it is not easy to issue bonds now because it is difficult to find a buyer and many investors are looking to sell their holdings. Banks may also not have sufficient purchase limits for all issuers, the sources added.

($1 = 6.8636 Chinese Yuan)

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Reporting by Xie Yu, Engen Tham, Julie Zhu, Clare Jim, and Kevin Huang. Edited by Sumeet Chatterjee and Kim Coghill

Our criteria: Thomson Reuters Trust Principles.

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