China Central Bank Doles Out Cheap Loans To Buy Property Developer Bonds

China's central bank will offer cheap loans to financial firms for buying bonds issued by property developers, four people with direct knowledge of the matter said, the strongest policy support yet for the crisis-hit sector, Julie Zhu, Engen Tham and Kevin Huang reported for Reuters.

Photo Insert: The People's Bank of China (PBOC) hopes the loans will boost market sentiment toward the heavily indebted property sector, which has lurched from crisis to crisis over the past year.

The People's Bank of China (PBOC) hopes the loans will boost market sentiment toward the heavily indebted property sector, which has lurched from crisis to crisis over the past year, and rescue a number of private developers, said the people, who asked not to be named as they were not authorized to speak to the media.

China has stepped up support in recent weeks for the property sector, a pillar accounting for a quarter of the world's second-biggest economy.

Many developers defaulted on their debt obligations and were forced to halt construction. The country's biggest banks this week pledged at least $162 billion in credit to developers.

The PBOC loans, through its relending facility, are expected to be at much lower than the benchmark interest rate and would be implemented in the coming weeks, giving financial institutions more incentive to invest in private developers' onshore bonds, two sources said. Terms such as the interest rate on the loans were not immediately known.

The PBOC is also drafting a "white list" of good-quality and systemically important developers that would receive wider support from Beijing to improve their balance sheets, two of the sources said.

At least three private developers - including Longfor Group Holdings Ltd., Midea Real Estate Holding Ltd. and Seazen Holdings- received the green light this month to raise a total of 50 billion yuan ($7 billion) in debt.

If there were not enough demand from investors for such new bonds, the PBOC would likely step in to provide liquidity via the relending facility for the rest of the issuance, said one of the four people and another source.

Hong Kong's Hang Seng Mainland Properties Index was up as much as 4.7% on Friday, adding 1 percentage point after Reuters reported the PBOC moves. China's top developer by sales, Country Garden, was up 10%, CIFI Holdings was up more than 5% and Longfor nearly 4%.

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