Gradual Easing of China's Real Estate Regulations... Allowing High-Rated Real Estate Companies to Issue ABS

[Asia Economy Reporter Park Byung-hee] The Chinese government is gradually easing regulations on the real estate market, focusing on companies with high credit ratings.

Bloomberg reported on the 17th (local time) that the Chinese government plans to allow real estate companies to issue asset-backed securities (ABS) again.

According to an anonymous source, Chinese financial regulatory authorities recently notified exchanges that real estate companies with high credit ratings can apply for new ABS issuance to raise funds for debt repayment. In other words, they informed the exchanges to accept ABS issuance applications from real estate companies.

Accordingly, an affiliate of China Resources Land, a state-owned Chinese real estate company, plans to issue ABS worth 520 million yuan this week. This is the first ABS issuance by a real estate company in about three months.

The Chinese government had restricted ABS issuance by real estate companies since the second quarter, and there had been no ABS issuance by real estate companies since August.

Real estate companies have secured a means to raise funds, allowing them some breathing room in fund management. According to GF Securities, as of April, the scale of ABS issuance by real estate companies reached 152 billion dollars.

Bloomberg China Junk Grade Dollar Bond Yield Trends [Image Source= Bloomberg]

Since last week, the market sentiment has changed, with Chinese real estate company stock prices and bond prices rising. This is because Chinese state media have repeatedly reported that authorities plan to ease regulations on real estate companies starting last week. In fact, as authorities allowed real estate companies to issue bonds, three real estate companies, including Bright Real Estate Group, are scheduled to issue a total of 8.6 billion yuan worth of yuan-denominated bonds in the China Interbank Bond Market (CIBM) this week. If the issuance is successful, the bond issuance volume in November will be the largest in eight months.

Yang Hao, a bond analyst at Nanjing Securities, said, "It is unusual for such a large-scale bond issuance to be allowed all at once," adding, "It is a signal from the authorities to ease the tightened market sentiment."

Bloomberg reported that the yield on Chinese junk-rated dollar bonds surged to a record high of around 25% early last week but has since fallen to about 20%.

Bloomberg analyzed that investor anxiety has eased as Chinese state media have consecutively reported news of regulatory easing for real estate companies. However, it added that specific details about the regulatory easing are not well known.

According to sources, the Chinese government also plans to relax the limits on the scale of new bond issuance by real estate companies in the CIBM. However, the sources added that the regulatory easing will be applied selectively to real estate companies with high credit ratings.

So far, the regulatory easing has been focused mainly on real estate companies with high credit ratings. On the 12th, the Chinese banking regulatory authorities stated that there would be no sudden changes in real estate policies but emphasized that they would suppress financialization and the real estate market bubble.

This content was produced with the assistance of AI translation services.