China lifts ban on equity refinancing by developers

The mainland’s securities regulator has said it will allow property developers to sell shares to raise funds, lifting a years-long ban on equity refinancing as Beijing steps up support for the embattled sector.

The China Securities Regulatory Commission (CSRC) rolled out five measures to facilitate equity financing for developers, including allowing mergers and acquisitions, restructuring and private share placements. The rules apply to the firms listed on the mainland and in Hong Kong.

It also said it would optimise real estate investment trusts to revitalise property assets and start a pilot programme for real estate private equity funds.

The move marks a milestone that will optimise the financing policies for the property sector, according to a report from China

International Capital Corporation (CICC) yesterday.

“The policy aims to revitalise the existing resources, avoid risks and stabilise the property market,” the report said.

It is the latest measure by authorities to alleviate the liquidity problems facing indebted developers and follows a 16-point rescue plan for the sector jointly released by the People’s Bank of China and the China Banking and Insurance Regulatory Commission on November 11.

CICC said the so-called “third arrow” to support equity financing, together with extending loans to property firms and allowing bond issuances, would ease the industry’s liquidity problems. This would boost market sentiment in the short term and promote stability of the market in the long run, it said.

The mainland’s property sector is also expected to recover gradually and show healthy performance next year, according to CICC.

“From what I can remember in my almost 20 years of sell-side experience as a property analyst, there has been no equity fundraising [allowed] for developers in the A-share market in [the] past 15 years because of this policy [ban],” Raymond Cheng, managing director of CGS-CIMB Securities, said in a research note.

In 2006, mainland authorities introduced refinancing rules for listed property firms, but suspended that measure in 2009 to prevent the market from overheating, according to Reuters. The suspension was again lifted in 2013 before the restrictions were reimposed in 2016.

Allowing listed developers such as China Vanke and Country Garden Holdings to pursue equity financing marked a big change, Cheng said, adding the measures should further help address the problems of the property market.

However, Nomura Holdings said the worsening Covid-19 situation and protests in major cities, coupled with weakening home prices, would weigh on already fragile sentiment.

Analysts led by Dong Jizhou said in a report they expected Beijing to introduce more policies to revive housing demand after the annual central economic work conference next month.

Mainland property stocks soared yesterday, with the Hang Seng Mainland Properties Index rising by 8.1 per cent. Vanke surged by 13.6 per cent, Longfor Group Holdings added 11.3 per cent while Country Garden rose by 4.4 per cent.