China supports several private developers with bond guarantee -sources

11:22 pm Monday, August 15th, 2022

HONG KONG (Reuters) – Chinese regulators have instructed state-owned China Bond Insurance Co. Ltd. to provide guarantees for onshore bond issuance by a few private property developers including Longfor Group and CIFI Holdings, according to four sources with knowledge of the matter.

The support from the state comes amid mounting concerns that a deepening debt crisis and defaults in the sector could impact property developers that have been regarded as financially sound.

Property developers’ shares surged on Tuesday following the news, with Longfor, CIFI and top developer Country Garden all jumping over 15%. The Hang Seng Mainland Properties Index firmed 9.2%, versus a 0.6% gain in the main Hang Seng Index.

China Bond Insurance Co, which provides financial guarantee services, will provide “full amount, unconditional and irrevocable joint liability guarantee” to these medium-term notes, the sources said. The guarantee provides more protection than credit risk management tools, they said.

Two of the sources said Longfor has already sold 3-year and 5-year medium term notes totalling up to 1.5 billion yuan with a guarantee from China Bond Insurance Co.

Financial information provider REDD first reported the plan to provide a guarantee for issuers on Monday evening. Its report said policymakers had drawn up a list of half a dozen developers regarded as financially stronger, including Gemdale Corporation and Country Garden Holdings, whose bond issues would receive guarantees.

REDD also said policymakers were considering asking state investors to subscribe for new notes issued by developers. The issuers would have to provide collateral for the state guarantee but the use of proceeds would be flexible, it said.

CIFI, Country Garden and Longfor declined to comment. China Bond Insurance Co. Ltd and Gemdale were unavailable for comment.

Reuters reported authorities had also helped some financially sound developers to boost liquidity in May, when it encouraged Country Garden, Longfor and Midea Real Estate to issue bonds, while also requesting securities firms to provide credit risk management tools for potential investors in the bonds.

(Reporting by Kevin Huang and Shuyan Wang in Beijing, Clare Jim in Hong Kong; Editing by Simon Cameron-Moore)