HONG KONG, Jan 25 (Reuters) - Chinese state-owned property
firms are expected to acquire more assets from cash-strapped
private developers, analysts said, as Beijing steps up efforts
to stabilise and tighten control over a crisis-hit sector that
accounts for a quarter of its economy.
The market has seen over half a dozen deals in recent weeks
following easing of rules to issue debt for quality property
firms, and initiatives by local governments to facilitate asset
disposal for distressed firms.
State-owned China Overseas Land & Investment (COLI)
is buying stakes of Shimao Group and Agile
Group in a joint venture project for a total of 3.7
billion yuan ($585 million).
Regulatory curbs on borrowing have driven China's property
sector into crisis, highlighted by China Evergrande Group https://www.reuters.com/business/shares-china-evergrande-jump-after-report-restructuring-plan-be-released-soon-2022-01-24
, once the country's top-selling developer but now the
world's most indebted property company.
In the last two months, Beijing has taken a string of
measures to restore stability in the sector hit by defaults on
offshore debt obligations, credit rating downgrades and a
selloff in developers' bonds and stocks.
Those measures included urging banks to provide appropriate
lending to developers, making issuance of interbank notes and
asset-backed securities easier, and not including M&A related
loans in the debt ratio caps for state-owned enterprises (SOEs).
The sector is seeing a spurt in dealmaking as a result.
Shimao, which has defaulted on a trust loan and extended
asset-backed securities payments this month, sold a commercial
land in Shanghai last week to a company owned by the Shanghai
municipal government for 1.1 billion yuan.
The property management arm of state-backed developer China
Resources Land acquired property services businesses
of Yuzhou Group and Jiangsu Zhongnan Construction
this month for a total of 3.3 billion yuan.
"For sure we will see more of these deals, because the
central government has made the order," said Oscar Choi, founder
and CIO of Oscar and Partners Capital Limited. "Large
state-owned enterprises will need to respond and act."
Choi expects SOEs will not go beyond assets and management
property business to directly acquire stakes in the distressed
developers, as Beijing wants to stop short of direct bailouts
and keep only the "meaningful" players in the market.
"Equity investment will be a last resort ... (Beijing's)
broad principle is save the market and not individual
With a growing list of embattled private developers now
scrambling for cash to meet debt obligations, pay suppliers and
workers, and complete construction work, more such deals are in
Shimao is putting 36 of its projects worth 77 billion yuan
on sale, according to local media The Paper on Tuesday. The firm
could fetch up to 23.6 billion yuan in cash after repaying the
debt pledged to the assets.
"Many more private developers are going to end up in the
hands of state-owned ones; Shimao is just one case of money,"
said Alicia Garcia Herrero, Natixis Asia Pacific chief
Major private developer Sunac China has also been
disposing its assets in recent months to buyers including
state-owned Beijing Capital Group and Zhuhai-based Huafa Group,
media reported, raising over 20 billion yuan.
Shimao and Sunac declined to comment.
While state-supported deals would send a positive signal to
the market and ease the cash crunch of the sellers for a short
while, developers said it will not be enough to solve the debt
crisis in the sector.
"There are so many distressed assets in the market, how much
can the SOEs buy?", said a senior official of a developer based
in eastern China, who declined to be named because he was not
authorised to speak to media.
Among China's top 30 developers, assets owned by state-owned
firms are worth 6.2 trillion yuan, just 48% of their private
counterparts, according to ANZ, and they generally have lower
leverage ratios than their private counterparts.
"We doubt how successful 'nationalising' the property sector
can be, if there is such a plan," ANZ said in a report last
(Additional reporting by Xie Yu; Editing by Himani Sarkar,
Sumeet Chatterjee and Ed Osmond)