Date
20 November 2017
The property sector accounts for about one-quarter of China’s economic output when related industries like steel and appliances are added. Photo: Bloomberg
The property sector accounts for about one-quarter of China’s economic output when related industries like steel and appliances are added. Photo: Bloomberg

China’s debt-laden developers get help from state banks

China is lending a helping hand to property developers struggling against slumping sales and tighter credit in the housing market.

Evergrande Real Estate Group has received credit lines worth 100 billion yuan ($16.1 billion) from three major state-owned banks and a private lender, the Wall Street Journal reported. Its borrowings has reached 151.8 billion yuan as of June 30, up 39 percent from the end of 2013.

Evergrande’s net gearing levels, or debt as a proportion to equity, was 287 percent as of end-June 2014, up from 165 percent in December 2013, according to brokerage firm CLSA.

Meanwhile, state-backed China Orient Asset Management Corp. has revealed plans to acquire a 50 percent stake in Shanghai Zendai Property Ltd. for HK$1.5 billion (US$193 million). The asset-management firm, which had extended loans worth a combined 1.96 billion yuan to Zendai, has since offered to buy the remaining shares it doesn’t already own, the newspaper said.

State-backed China Communications Construction Group in December said it is buying a 24 percent stake in Hangzhou-based luxury property developer Greentown China Holdings Ltd. for HK$6 billion.

All this assistance underlines the importance attached to the property sector, which accounts for about one-quarter of China’s economic output when related industries like steel and appliances are added.

Analysts also note that whatever happens in the sector affects other areas such as banking and construction.

The housing slump, resulting from an oversupply of homes in many Chinese cities, has pushed smaller developers to default on loans while many larger builders have seen margins narrow and inventories rise, the newspaper said.

“Would the government pull a Lehman Brothers and let someone go bankrupt and risk contagion, or would it assist a state-backed company in helping a large developer dodge that?” said Colin Bogar, Shanghai-based managing director of real-estate private-equity firm MGI Pacific.

“There are many layers of information that are not public, and sophisticated money is aware that there’s too much risk,” he added.

Meanwhile, deals for equity stakes in property developers have reached US$10.9 billion so far this year, according to data provider Dealogic, or roughly the same amount seen over the past four full years combined.

Of the seven deals this year, four were done by state-backed companies, representing two-thirds of the deal value. 

Some analysts say that state-backed firms, with their wider access to credit, have room to take risks which could pay off when the slumps ends.

“These are unique, individual companies, and the buyers are making opportunistic investments,” said Christopher Lee, an analyst with Standard & Poor’s.

Evergrande said its new loan agreements were routine. “These are normal strategic cooperation agreements,” it said in a statement. “There is no need to over-analyze this.”

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CG

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