© Reuters. FILE PHOTO: A man wearing a mask walks past the headquarters of the People’s Bank of China, the central bank, in Beijing, China, as the country is affected by the new coronavirus outbreak, February 3, 2020. REUTERS/Jason Lee
By Julie Zhu and Engen Tham
HONG KONG/SHANGHAI (Reuters) – China’s central bank will provide cheap loans to financial firms by buying bonds issued by producers, four people familiar with the matter said, a strong boost to the crisis-hit sector.
The People’s Bank of China (PBOC) hopes the loans will boost market sentiment for the heavily indebted sector, which has been struggling for the past year, and rescue several local developers, the people said, who asked not to. mentioned because he was not allowed to speak to the media.
China has increased aid in recent weeks to the financial sector, a pillar that accounts for a quarter of the world’s second-largest economy. Many developers defaulted on their loans and were forced to suspend construction.
Major banks in the country this week pledged at least $162 billion in loans to developers.
The PBOC’s lending facilities, through its refinancing facilities, are expected to be much lower than the average interest rate and will be set in the coming weeks, giving financial institutions more incentive to invest in offshore bonds, two sources said.
Laws such as interest on loans were not immediately known.
The PBOC is also drawing up a “white list” of good and valuable developers who could receive more support from Beijing to improve their balance sheets, two of the sources said.
The central bank did not immediately respond to a request for comment on its plans.
At least three business developers – including Longfor Group Holdings Ltd, Midea Real Estate Holding Ltd and Seazen Holdings – received the green light this month to raise 50 billion ($7 billion) in loans. If there wasn’t enough demand from investors for the new bonds, the PBOC would have taken steps to issue funds through the facility for the entire issuance, said one of the four people and another source.
Hong Kong’s Mainland Properties Index rose as much as 4.7% on Friday, adding 1 percent after Reuters reported the PBOC’s move. China’s largest manufacturer by sales, Country Garden, rose 10%, CIFI Holdings rose more than 5% and Longfor nearly 4%.
FROM CRACKDOWN TO FULL SUPPORT
The bailout is a tool used by the PBOC to make cheap loans to banks to support the shrinking economy, as the central bank faces limited room to lower interest rates in a runaway crisis.
The PBOC in recent months has used a bailout facility to support sectors including transportation, logistics and technology that have been hit hard by the COVID-19 pandemic or are favored by long-term policies.
Beijing’s aggressive support for the financial sector reflects a shift that began in 2020 for speculators and creditors in a strong push to reduce financial risks.
However, as a result of the turmoil, property sales and prices fell, bond producers defaulted and construction halted. The construction freeze has angered homeowners who have threatened to default on mortgage payments.
The PBOC is also planning to provide 100 billion yuan ($14 billion) in M&A funds to state-owned wealth managers mainly for acquiring real estate projects from distressed borrowers, two sources said.
Chinese media reported on Monday that the central bank planned to provide 200 billion interest-free loans to commercial banks by the end of March to complete housing.
In other recent developments, China’s interbank bond market regulator said this month it would expand a program to support about 250 billion yuan ($35 billion) of loans issued by private companies.
Much of Beijing’s support focused on government developers.
Yi Huiman, chairman of China’s national security watchdog, said on Monday the country should put in place plans to improve its “good conduct” record.
Fitch Ratings said Thursday that China’s corporate sector faces more liquidity risk, in terms of a debt system with shorter maturities, than its government counterparts as banks and other lenders are forced to lend.
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