Chinese lender to issue bonds for M&A in cash-strapped property sector

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SHANGHAI — Property developer shares rose on Tuesday after a Chinese lender unveiled a plan to issue debt to fund real estate acquisitions – the first bank to do so – while Beijing sought to reassure investors about the broader impact of defaults on bond markets.

Shanghai Pudong Development Bank Co plans to raise 5 billion yuan ($790 million) by selling three-year bonds through China’s interbank market, it said in a filing on Monday. The funds would be used to finance real estate project acquisitions in the form of lending, it said.

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The bond sales plan by the Shanghai government-controlled bank pointed to a broadening of financing channels for the property sector and more financial institutions were expected to follow suit, analysts said.

Beijing is already encouraging large property developers to acquire assets from cash-strapped real estate firms to ease liquidity pressure. Developer China Merchants Shekou Industrial Zone Holdings Co said last week it planned to issue bonds for real estate acquisitions.

China will also make it easier for state-backed property developers to buy up distressed assets of debt-laden private firms by not counting such loans as debt under rules that cap borrowing, a source told Reuters this month.

Also on Tuesday, Jin Xiandong, an official at China’s National Development and Reform Commission, told a conference the market was adjusting to news of defaults by some highly leveraged real estate developers and he did not expect them to affect Chinese companies’ overseas bonds more generally.

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The CSI300 Real Estate Index jumped nearly 5%, on Tuesday morning, while the Hang Seng Mainland Properties Index gained more than 3%.

Dollar bonds of Chinese developers also rebounded following sharp falls in the previous session.

A Country Garden Holdings 2026 bond rose to 70.866 cents on the dollar, up from 64.865 over night, according to data by Duration Finance, after the developer scooped up $10 million of its own bonds on Monday. Its shares jumped 5.3%.

Separately, in a rare case where a trust company took over assets from a distressed developer, state-owned Minmetals International Trust bought all equities in two projects from struggling China Evergrande Group, filings at the National Enterprise Credit Information Publicity System showed.

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Two projects – in the southern cities of Kunming and Foshan – were pledged to a Minmetals trust loan extended to Evergrande, according to the filings, and Minmetals spent 50 million yuan ($7.9 million) and 30 million yuan respectively to acquire all the equity in the projects. It held 51% in the latter project before the acquisition.

Minmetals said in a statement it wanted to help solve the Evergrande’s problems to “ensure home delivery, ensure people’s livelihood, and ensure stability.”

More cash-strapped developers worked to avoid defaults or raise money. Shimao Group rose 4%, after it won approval on Monday from creditors to extend the payment deadline of a 450 million yuan asset-backed security (ABS). ($1 = 6.3429 Chinese yuan renminbi) (Reporting by Jason Xue and Samuel Shen in Shanghai, Shuyan Wang in Beijing, and Clare Jim in Hong Kong; Editing by Rashmi Aich and Richard Pullin)