Chinese Financiers Cold Shoulder Beijing Bid To Rescue Property Developers

Some of China's state-backed financial institutions are pushing back on Beijing's calls to support the embattled property sector due to concerns about the impact of such exposure on their balance sheets, seven people with knowledge of the matter said, Xie Yu, Engen Tham, Julie Zhu, Clare Jim and Kevin Huang reported for Reuters.

Photo Insert: Top bond issuers during the month were mostly state-owned or backed developers, including China Vanke and China Jinmao.

Without explicit financial backstop from Beijing, senior executives at some of the institutions are wary of engaging with cash-strapped developers and later dealing with potential losses of their own, said two of the sources.

Signing off on financial support to struggling developers has become a concern as employees are increasingly held accountable by authorities for poor lending and investment decisions, said the two sources.

China's property sector, which accounts for about a quarter of the economy, has been lurching from crisis to crisis since the summer of 2020 as a result of regulators stepping in to cut excess leverage in the sector, which led some developers to default on their debts and struggle to complete projects.

Loans granted by Chinese banks to developers in July dropped 36.8% year-on-year, while capital raised from offshore bond markets plunged 200%, according to Reuters calculations of the National Bureau of Statistics (NBS) data.

Onshore bond issuance in July, however, rose 4.2% from June to 32 billion yuan, according to researcher CRIC.

Top issuers during the month were mostly state-owned or backed developers, including China Vanke and China Jinmao. The issuance of onshore bonds is expected to rise -- stock prices of developers and some of their bonds rebounded last week after media reported that Beijing would guarantee new onshore bond issues by a few, better-quality private firms.

As part of that move, Longfor Group Holdings on Tuesday announced the launch of an up to 1.5 billion yuan ($218.54 million) bond offering. And there are expected to be more in the coming days.

Chinese financial firms are typically major subscribers to these new offerings by local companies. This time, however, some of them are not looking to buy new notes even from developers that have relatively better balance sheets. "We can't afford riding out the volatility before maturity. It will mess up our books," said a credit analyst with a Shanghai-based and state-backed asset manager.

"Analysis does not work anymore, because pessimism has grabbed the market … anything related to property is a no-go," said the credit analyst. Huarong Asset Management Company, one of China's four large state-owned bad loan managers, has been tasked with looking at projects, but has passed over many.

"We need to have some comfort that we'll get repaid at least some of our funds," the official said. Some developers are also finding that state reassurances on stabilizing the sector don't necessarily translate into more bank funding, as they scramble to finish apartment construction to placate homebuyers threatening to stop paying mortgages.

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