Real Estate Policies Guard Normal Firms, But Offer Little Respite for Troubled Ones

Credit: Visual China

BEIJING, July 4 (TiPost) – Within two weeks, six listed real estate companies have received approval for their private placements, marking the start of the third wave of real estate financing.

China Merchants Shekou Industrial Zone Holdings Co., Ltd on June 16 became the first real estate company to secure registration approval under the new real estate financing policy. On June 27, Poly Real Estate Group Co., Ltd., Shanghai Worldbest Co. Ltd., Hubei Fuxing Science & Technology Co., Ltd., and CCCC Real Estate Group Co., Ltd. also received approval for their private placements. On June 29, Lujiazui gained approval for issuing shares to acquire assets and raise matching funds.

In November 2022, the People’s Bank of China and the China Banking and Insurance Regulatory Commission jointly issued a notice outlining the ongoing efforts to provide financial support for the stable and healthy development of the real estate market. Following this notice, financial institutions have taken actions to implement the “three waves” of policy support for real estate enterprises’ financing.

The first wave featured bank loans, while the second included bonds issuances in the financial market.

However, as of the first half of 2023, the financing situation for real estate enterprises had not experienced a significant rebound. Coupled with sluggish property market sales, the real estate industry is still grappling with its challenges.

Based on data from China Real Estate Information Corporation (CRIC), the total financing for 80 real estate enterprises in May of this year amounted to 26.33 billion yuan, a decrease of 56.4% month on month and a decrease of 60.4% year on year. This represented the lowest monthly financing level since 2020.

In a recent research report, CRIC stated, “Despite the relaxation of policies since the fourth quarter of 2022, the financing is still limited to high-quality and white-listed real estate enterprises. The overall financing environment for the industry is still on the decline, and many private real estate enterprises, especially those facing financial challenges, continue to struggle with obtaining financing.”

Based on the credit support list, Vanke received intentional financing support from six large state-owned banks, amounting to a total scale exceeding 300 billion yuan. Additionally, eight real estate enterprises, including Country Garden, received support from two or more banks.

Regarding the debt issuance list, seven real estate enterprises, including Longfor Properties, have obtained quotas for their registered bond issuance.

However, real estate enterprises currently facing risk exposure, such as Evergrande Group and other enterprises on the brink of default, are not included in the list.

This demonstrates that the current round of real estate support policies aims to reverse the market’s pessimistic expectations and prevent the risks from spreading to normally operating enterprises. However, there is no intention to endorse or provide direct support to endangered real estate enterprises.

Furthermore, most real estate enterprises, regardless of whether they have received intentional credit lines from banks, bond quotas for debt issuance, or proposed plans for non-public issuance of shares, are not currently receiving substantial funds. Considering the prevailing occurrence of bond defaults, only white-listed real estate enterprises have a better chance of accessing real capital.

The approval of private placement plans indeed reflects policy support. However, the actual issuance process is market-oriented, requiring proactive efforts from the company and its sponsor to secure funding. The decision of investors to purchase these offerings depends on the quality of the real estate enterprises themselves and the confidence of investors in the companies.

As a result, real estate enterprises launching private placement programs often see their major shareholders actively participating or even acquiring a significant portion of the share offering to demonstrate their commitment.

According to data from Choice, the financial data platform mobile terminal of East Money Information, apart from the six real estate enterprises that have already received approval for private placements, there are 17 companies currently in the process of seeking approval for equity financing.

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