Govt aims to accelerate M& A among indebted real estate enterprises

The People’s Government of South China’s Guangdong Province has held meetings with a number of property enterprises, likely paving the way for state- owned real estate enterprises to carry out merger and acquisition ( M& A) deals with troubled property firms, financial news site cls. cn reported.

The meeting came after media reports said that loan limits for debt- financed acquisitions will be removed, as a measure to accelerate the M& A of debt- ridden property firms, an analyst said.

The loan rules for builders, known as “three red lines,” define thresholds on debt and were introduced by Chinese regulators in 2020.

Since September 2021, under the “three red lines” rules, China’s property market cooled, and a number of developers, including Evergrande Group, struggled with liquidity issues, affecting market sentiment.

“The Guangdong meeting underscored the government’s focus on asset disposals for troubled enterprises. As large real estate enterprises in Guangdong were involved in these talks with the local authorities, it was a chance for highly indebted enterprises and those in better financial status to talk face- to- face, in order to accelerate the process,” said Yan Yuejin, research director at Shanghai- based E- house China R& D Institute.

Yan noted that Guangdong’s policy will help address concerns about acquiring assets of troubled companies, and other provinces should learn from it as they strive to address property risks.

Since the fourth quarter of 2021, policies involving M& A have eased. In December, China’s central bank and the China Banking and Insurance Regulatory Commission released a statement encouraging financial institutions to make loans for real estate M& As, and to support the mergers of high- quality real estate firms and their acquisitions of the projects of key housing firms.