China will make it easier for state-backed real estate developers to buy distressed assets from their private counterparts, a source with direct knowledge noted, another move to avoid a liquidity crisis in the sector.
State developers acquiring distressed assets will not have those loans accounted for as debt under borrowing-limiting regulations.
The politics of “three red lines”Restricts the number of new loans that real estate developers can obtain each year, setting limits on their debt ratios.
Authorities have encouraged state-owned construction companies to look at the assets of their liquidity-strapped private counterparts, as an increasing number of them have defaulted on their debt obligations, causing a shock to financial markets.
Chinese developers are facing an unprecedented liquidity crisis due to years of regulatory restrictions on borrowing.
Banks have informed state developers about the exclusion of M&A loans in calculating their debt ratios, the source said, but added that the appetite for acquiring assets is not high.
The financial intelligence provider REDD was the first to report the relaxation of borrowing rules for state developers, and said local governments, including those in Shanghai and Guangzhou, held meetings with developers last week to facilitate the M&A process.
REDD He added that policy makers asked companies in mid-December to acquire assets from 11 cash-strapped private developers to ease their financial strain.
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