Chinese property stocks rally as banks pledge USD 38 billion in credit support

HONG KONG, Nov 24 (Reuters) – Chinese property shares jumped on Thursday after the country’s biggest commercial banks agreed to provide at least USD 38 billion in fresh credit lines to developers, adding to recent regulatory support measures to ease a stifling cash crunch in the sector.

Country Garden, China’s top developer by sales, rose more than 20% after state media reported on Thursday that it had received a credit line from Postal Savings Bank of China worth at least 50 billion yuan (USD 7.0 billion).

China Vanke, CIFI Holdings and Greentown China rose between 5.8% and 12.8% in Hong Kong.

A gauge tracking the sector, the Hang Seng Mainland Property Index, rose 6.4%.

Besides Postal Bank, three of China’s biggest state-owned banks have agreed to provide fundraising support to developers, including industry giants Vanke and Country Garden, in a coordinated effort to support the embattled property sector.

Policy priority has been placed on supporting the bigger and better developers, as it remains challenging for them to collect enough cash via sales, bond and equity financing, said Gary Ng, senior economist at Natixis Corporate and Investment Bank.

“But I am a bit worried about the smaller ones, and they might still be unable to repay debts due to the challenges in home sales or financing by themselves,” he said.

The impact on banks as a result of their increased lending to the embattled property developers will be mixed, analysts say, as they must to balance between heeding Beijing’s call to support the sector and warding off risks.

“Asset quality might be under challenge and the non-performing ratio for real estate will stay high for banks in the coming months,” Ng said.

Despite banks are making efforts to follow a regulatory call to bolster the sector, most of the new loans will go to state-backed developers, Shujin Chen, analyst with Jefferies, said in a note issued on Thursday.

“Private developers that already defaulted on public debts will still struggle,” she said.

Beijing has been stepping up measures in recent weeks to support the property sector, which has been hit by a debt crisis.

The sector has been reeling under mounting debts, defaults, slower sales and construction suspensions, after the authorities initiated a campaign to rein in excessive borrowing by developers.

Several developers have defaulted on their offshore debt obligations over the past year, fuelling a sector-wide downturn that has weighed on the world’s second-largest economy.

To ease the liquidity crunch, the central bank on Wednesday issued a notice outlining 16 steps to support the sector.

These include local financial firms allowing real estate companies to defer repayment of some loans, such as property development and trust loans, Reuters reported last week, citing sources with knowledge of the matter.

(Reporting by Xie Yu; Editing by Sumeet Chatterjee and Edmund Klamann)