In a bid to support the beleaguered real estate sector, Chinese authorities have initiated the drafting of a list comprising 50 real estate firms eligible for financing. This strategic move has prompted a notable surge in both shares and bonds of Chinese developers, marking a significant rebound for the industry.

A Bloomberg index tracking China developer stocks witnessed an impressive uptick of up to 7.6% in early trading, marking its most substantial gain since September. Leading the charge, Sunac China Holdings Ltd. spearheaded the sector’s rise with an impressive rally of up to 27%, closely followed by Seazen Group Ltd. and Agile Group Holdings Ltd., which each saw a surge of over 10%.

Termed the “white list,” this compilation is anticipated to allay concerns regarding potential contagion within China’s property sector. Despite state-backed builders grappling with funding challenges, the move aims to instill confidence. However, industry experts are cautious about the list’s ability to reverse the sector’s prolonged downturn, emphasizing that it does not mandate banks to extend loans to real estate firms.

JPMorgan Chase & Co. analyst Karl Chan remains skeptical about the longevity of the positive impact. He stated, “Directionally this would be positive as it should enhance confidence from both homebuyers and banks. But if property sales of a non-SOE deteriorate substantially, we believe most banks may still be reluctant to extend support, as a white list may likely only serve as a ‘reference.’”

Notable real estate players such as China Vanke, Seazen, and Longfor were reportedly included in the draft of the funding list, according to undisclosed sources familiar with the matter. The list encompasses both private and state-owned developers and is designed to guide financial institutions in considering support for the industry through bank loans, debt, and equity financing. The complete roster of developers included in the draft list has not been disclosed.

Developer bonds experienced a surge, with China Vanke Co. leading gains as its 3.5% notes due in 2029 rose 2.3 cents to 60.7 cents on the dollar. However, despite the positive momentum, bonds for Longfor and Seazen still trade at distressed levels.

In a recent directive, China’s largest banks, brokerages, and distressed asset managers were instructed to fulfill all “reasonable” funding needs from property firms. The directive, issued by top financial regulators, did not explicitly mention the white list but emphasized equal treatment for private and state-owned developers in lending practices.

Despite these measures, skepticism persists among investors regarding the potential effectiveness of these initiatives in reversing the real estate sector’s downward trajectory. Andrew Zhu, fund manager at Hainan Shire Asset Management Co., noted, “We want to see which private investors are actually on the list, as well as the size of the funding eventually delivered because, in reality, banks that have low risk appetite might not provide that much support.”

Photo (China Daily)

By: Delino Gayweh
Serrari Financial Analyst
20th November, 2023