Shares and bonds of real estate developers in China jump thanks to the financing support plan

Bonds and stocks of real estate developers in China jumped after authorities began drawing up a list of 50 real estate companies that will be eligible for financing, marking the latest move by the Beijing administration to support the faltering real estate sector.

The Bloomberg China Developers Index rose as much as 7.6% in early trading, and is on track to record its biggest rise since last September. Sunac China Holdings shares also advanced by as much as 27%, leading the sector’s gains, while shares of both “Seazen Group” and “Agile Group Holdings” rose. By more than 10%.

The so-called "white list" may partly reduce fears of default contagion in China's real estate sector further, as several construction companies - including state-backed ones - have recently struggled with financing challenges. This may also address long-standing concern among investors about less favorable financing conditions for developers in the country's private sector.

Real estate companies recover in China

Longfor Group Holdings' 3.85% bonds due 2032 rose by 4.2 cents on Monday to 42 cents, while Seazen's 4.8% bonds due 2024 jumped 3.4 cents to 35.4. cent. Both are on track to achieve their biggest gains in nearly two weeks, although they are still trading at faltering levels. China Vanke Co's 3.5% bonds due in 2029 rose again by 0.4 cents to 58.8 cents on Tuesday morning after rising 5.9 cents on Monday.

China Vanke, Seazen and Long Four are among the companies mentioned in the draft financing list, said people familiar with the matter, who requested anonymity because the information is private.

The list, which includes private and state-owned real estate developers, is intended to guide financial institutions as they consider supporting the industry through bank loans, debt and equity financing, the people added. The names of the other developers included in the draft list are not yet known.

The crisis of real estate companies in China may continue

Carl Chan, an analyst at JPMorgan Chase & Co., believes that this step may contribute to enhancing confidence towards some developers, but it will likely not put the end to the developer default crisis in China.

“We do not believe that a whitelisting alone can save the company from the clutches of a bond default,” Chan wrote in a note. “However, this would play into the hands of market trends and would be a positive thing because it should boost the confidence of both homebuyers and banks, but if it deteriorates... "Real estate sales in non-state-owned companies are significant; most banks will remain reluctant to extend support in our opinion. The whitelist will then become merely a guideline."

Chan gave the example of Country Garden, which received financial support from authorities and banks but still failed to avoid default.