Regulators under pressure to ease loan curbs: Evergrande update

China’s finance regulators should ease up on their efforts to rein in developers’ debt to help them ride out the latest Covid wave, a former central bank official said.

The outbreak may “severely” hit home sales and impede a recovery, Sheng Songcheng, an ex-director of the People’s Bank of China’s statistics and analysis department, said in an interview Tuesday. Banks should, at least temporarily, be allowed to provide developers with loans that break the “three red lines” debt metrics, as long as the builders refrain from piling up borrowings in the next six months, he said.

Meanwhile, Chinese banks kept lending rates including the reference rate for mortgages steady for a third month. The lack of policy easing led shares of Chinese real-estate firms to decline, with the Bloomberg gauge of developers down as much as 4.5%. Country Garden Holdings Co. led declines of Chinese dollar notes, with the firm’s 5.125% bond due 2025 falling 1.8 cents on the dollar to 73.6 cents, according to Bloomberg-compiled data.

Key Developments:

  • China Developers Extend Fall After Lending Rates Kept Unchanged
  • Ex-PBOC Official Urges Easing Property Crackdown During Outbreak
  • Chinese Banks Hold Lending Rates Despite PBOC Calls for Easing
  • Several Chinese Cities Ease Housing Loans, Down Payment: Daily
  • China Central SOEs to Focus on Growth, Risk as Pressure Mounts
  • Unigroup USD Bonds’ Trustee Says No Assurance It Can Remit Funds
  • China Sees Moderate Rise in CPI, Developer Default Risks: Xinhua

China Developers Extend Fall After Lending Rates Kept Unchanged (3:10 pm HK)

Shares of Chinese real-estate firms dropped after the nation’s banks maintained their lending rates, including a key reference rate for long-term loans such as mortgages. The outcome disappointed some investors who had expected more policy support.

Seazen Group Ltd. and CIFI Holdings Group Co. fell as much as 10%, Greentown China Holdings Ltd. was down 9.4%, and Poly Developments and Holdings Group Co. was down 7.9%.

“The restraint in stimulus delivered alongside the lack of a clear path out from the liquidity crunch of property developers is underwhelming,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a note before the loan prime rate (LPR) results came out.

Country Garden Leads Weakness in China Property Firms’ USD Bonds (1:32 pm HK)

Country Garden lead declines in Chinese developers’ dollar notes as the sector’s stocks slid. The firm’s 2025 bond is on pace for its biggest drop in more than a week.

Chinese high-yield dollar bonds, a market dominated by builders, were generally unchanged to 1 cent lower, according to credit traders. The market has remained just below 70 cents the past two weeks following a bounce from record lows, according to a Bloomberg index.

Fitch Withdraws Shimao’s Ratings (12:13 pm HK)

Fitch Ratings withdrew China-based property developer Shimao Group Holdings Ltd.’s issuer default rating of CCC and the senior unsecured rating on Shimao’s outstanding US dollar senior notes of CCC with a recovery rating of RR4. It’s removing the ratings as Shimao has chosen to stop participating in the rating process.

Fitch Withdraws Logan’s Ratings (11:45 am HK)

Fitch Ratings is withdrawing the ratings as Logan Group Co. has chosen to stop participating in the rating process, which means it will no longer have sufficient information to maintain the ratings. Fitch will no longer provide ratings or analytical coverage for Logan.

It has withdrawn Logan’s long-term foreign- and local-currency issuer default ratings of CCC and also the senior unsecured rating and the rating on Logan’s outstanding US dollar senior notes of CCC, with a recovery rating of RR4.

Ex-PBOC Official Urges Easing Property Crackdown During Outbreak (11:30 am HK)

The former official, Sheng Songcheng, said regulators should allow banks to keep providing loans to developers that break debt metrics known as the “three red lines,” at least temporarily, as long as builders refrain from piling up borrowings in the next six months.

Lockdowns in key cities are worsening the housing slowdown that emerged last year when a cash crunch among developers shattered confidence among homebuyers. Authorities last month pledged to support the industry, which has been battered by a crackdown on excessive leverage.

Sheng also called for allowing banks more time to comply with a separate rule that caps their property lending. A requirement imposed at the start of 2021 gives lenders four years to meet the limit. Sheng suggests banks to be given another six to 12 months.

Chinese Banks Hold Lending Rates Despite PBOC Calls for Easing (9:30 am HK)

The one-year LPR was held steady at 3.7%, the People’s Bank of China said Wednesday. A slight majority of 9 of the 16 economists surveyed by Bloomberg had expected a cut. The five-year rate, a reference for long-term loans including mortgages, was also unchanged at 4.6%.

The LPRs are China’s de facto benchmark lending rates, based on the quotes that 18 banks offer their best customers and submit to the central bank. The one-year LPR usually moves in lockstep with the PBOC’s one-year medium-term lending facility rate, which was left unchanged last week.

Several Chinese Cities Ease Housing Loans, Down Payment: Daily (8:17 am HK)

Banks in several cities around Beijing have lowered mortgage rates for some homebuyers, with one reducing down payments threshold, Securities Daily reported Wednesday, citing unidentified officials of various banks.

Since the Qingming holiday, Zhangjiakou has lowered mortgage rates for first-time homebuyers and second-home buyers from 5.44% to 5.29%, and from 5.88% to 5.66%, respectively. The down payment threshold for first-time homebuyers was cut to 20% and the second home threshold reduced to 30%.

Some banks in Qinhuangdao and Baoding also lowered mortgage rate. Since April, Quzhou, Qinhuangdao, Dalian, Lanzhou, Suzhou, Nanjing and Shanghai have all loosen home purchase restrictions.

Unigroup USD Bonds’ Trustee Says No Assurance It Can Remit Funds (8:05 am HK)

The firm’s restructuring administrator has determined that recovery funds must be paid into an onshore account and government approval is needed to move them offshore, according to separate letters addressed to holders of a bond which became due in 2021 and a note which matures in 2023.

The trustee’s representative has not received information on why funds can not be paid to offshore account.

China Central SOEs to Focus on Growth, Risk as Pressure Mounts (8:03 am HK)

The country’s centrally administered state-owned enterprises will put more effort into stabilizing growth and controlling risks this year as they face greater downward pressure, Peng Huagang, spokesperson for State-owned Assets Supervision and Administration Commission, said at a briefing.

Central SOEs’ operations were steady in the first quarter but external factors, including the Russia-Ukraine conflict and Covid outbreaks, have brought many difficulties and challenges. Their revenue and net income saw slower year-over-year growth in March.

© 2022 Bloomberg

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