China easing fails to calm Evergrande jitters in property sector

Evergrande’s slow-motion collapse reverberated through China’s property sector on Monday, as property stocks tumbled despite assurances from Beijing it would support “quality” companies.

Shares of Chinese Estates Holdings, a Hong Kong-based property group, dropped as much as 35.2 per cent after a bid to take the company private and reduce its exposure to Evergrande failed.

The group, controlled by the family of Hong Kong billionaire Joseph Lau, had been a significant investor in the world’s most indebted developer and its other ventures, including its electric vehicle unit.

Shares in Kaisa, one of the biggest companies at the heart of the liquidity crisis in China’s property sector, fell as much as 15.2 per cent. Kaisa was downgraded to default along with Evergrande on December 9 after missing a $400m bond payment.

The company announced in a stock exchange filing that it had appointed Houlihan Lokey, the US investment bank advising Evergrande, as a financial adviser to respond to its liquidity issues. It added it was in talks with bondholders on a restructuring plan.

The Hang Seng Mainland Properties index, which tracks the Hong Kong-listed shares of 10 of China’s biggest developers, lost as much as 5.3 per cent, putting it on track for its fifth daily drop in the past seven trading sessions.

The turmoil at Evergrande, a real estate developer with $300bn in liabilities, follows Beijing’s introduction of new regulations last year to reduce leverage in the overheated property market.

Beijing is working to limit the contagion from Evergrande’s collapse on the property sector that is a significant driver of the country’s economy.

China’s central bank and banking regulator urged the country’s financial institutions to support “high-quality” real estate investments, according to a report on Monday in Financial News, a media organisation partly backed by the People’s Bank of China.

The PBoC has also held meetings with the country’s large real estate companies and banks to encourage healthy operators to acquire projects from distressed groups in the sector, Financial News said. It also urged banks not to withdraw loans from at-risk developers.

China lowered a key lending benchmark rate for domestic banks on Monday to counter a loss of economic momentum. The central bank cut the one-year loan prime rate to combat the crisis in the property sector, the impact of the coronavirus pandemic and weak consumer activity.

The move came after the PBoC in early December cut the level of reserves banks must maintain, injecting about Rmb1.2tn ($200bn) into the financial system.