Shares of several Chinese property developers soared on Tuesday on reports that state regulators ordered China Bond Insurance to guarantee support for bonds they issue in the domestic market.
The support from the state comes amid mounting concerns that a deepening debt crisis and defaults in the sector could impact property developers that have been regarded as financially sound.
Shares of Longfor, CIFI and top developer Country Garden all jumped by more than 15% in morning trading on Tuesday. The Hang Seng Mainland Properties Index firmed 9.2%, compared to a 0.6% gain in the main Hang Seng Index.
The gains were trimmed in subsequent trading with Longfor and CIFI up almost 11% at 7.45am BST, Country Garden rising almost 10% and the Hang Seng Mainland Properties Index holding onto an increase of 4.8%.
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Country Garden, Gemdale
State-owned China Bond Insurance Co, which provides financial guarantee services, will provide “full amount, unconditional and irrevocable joint liability guarantee” to these medium-term notes, the sources said. The guarantee provides more protection than credit risk management tools, they said.
Two of the sources said Longfor has already sold 3-year and 5-year medium term notes totalling up to 1.5 billion yuan with a guarantee from China Bond Insurance Co.
Financial information provider REDD first reported the plan to provide a guarantee for issuers on Monday evening. Its report said policymakers had drawn up a list of half a dozen developers regarded as financially stronger, including Gemdale Corporation and Country Garden Holdings, whose bond issues would receive guarantees.
REDD also said policymakers were considering asking state investors to subscribe for new notes issued by developers. The issuers would have to provide collateral for the state guarantee but the use of proceeds would be flexible, it said.
CIFI, Country Garden and Longfor declined to comment. China Bond Insurance and Gemdale were unavailable for comment.
Authorities also helped some financially sound developers to boost liquidity in May, when it encouraged Country Garden, Longfor and Midea Real Estate to issue bonds, while also requesting securities firms to provide credit risk management tools for potential investors in the bonds.
- Reuters with additional reporting by Jim Pollard
• This version of the story was updated at 7.45am BST with latest share prices in the fifth paragraph.