Several of China’s private property developers have gotten the go from regulators to receive guarantees on their bond issuance by the state-owned China Bond Insurance Co. Ltd.
According to Reuters, the bond issuance comes as support from the state following growing concerns that a widening debt crisis and defaults in the property sector could negatively impact developers who have been regarded as being financially sound.
Amid the news of the state-support, shares for several of the property developers such as Longfor Group, CIFI Holdings, and Country Garden Holdings had increased more than 15%. The Hang Seng Mainland Properties Indexed rose by 9.2% while the main Hang Seng Index marginally increased by 0.6%.
Based on several sources, the China Bond Insurance Co, a company which provides financial guarantee services, has stated they will give the “full amount, unconditional, and irrevocable joint liability guarantee” for the medium-term notes. They added that the guarantee provides better protection than credit risk management measures.
Additionally, two of the sources also revealed that Longfor had already sold 1.5 billion yuan worth of 3-year and 5-year medium term notes backed by China Bond Insurance Co.
A financial information provider known as REDD was the first to report China’s plan of providing a guarantee for the bond issuance earlier in week three of August.
In its report, it stated that the regulators had compiled a list of six property developers who are regarded as financially stronger which includes Longfor, CIFI, Country Garden and Gemdale Corporation, whose bond issues would receive guarantees.
Furthermore, REDD also reported that the regulators were considering requesting state investors to subscribe to new developer-issued notes. It stated that the issuers would be required to provide collateral for the state guarantee, although the use of the proceeds would be flexible.
Reuters also reported that in May, authorities had previously assisted some financially sound property developers to boost their company’s liquidity through encouraging Country Garden, Longfor, and Midea Real Estate to issue bonds, while at the same time requiring securities firms to give credit risk management tools for the possible investors of these bonds.
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