China is to allow property businesses to begin issuing asset-backed securities, breaking a three-month market freeze as officials seek to protect higher-rated developers from an industrywide funding crunch.
Financial regulators recently advised Chinese exchanges that "high quality" developers can seek to issue new assets to cover existing debt as early as this month, according to people knowledgeable about the subject.
According to one of the sources, no developers have granted abs since August, when the government began limiting permissions in the second quarter. According to GF Securities, developers had approximately 973 billion yuan ($152 billion) in outstanding ABS as of April.
According to people familiar with the situation, China also intends to loosen a restriction that limits the size of new interbank bond issuance by developers to 85% of their outstanding interbank debt. The relaxation will only apply to high-quality issuers, however, it is unclear how that term will be defined.
After a credit crisis at China Evergrande and other junk-rated developers expanded to higher-rated peers, banks, and even some tech businesses, regulators are fine-tuning their long-running crackdown on the property sector.
The volatility became severe enough last month to prompt the Federal Reserve to warn that if China's real-estate industry deteriorated severely, it may spread to the United States. The property slump has already prompted analysts to lower China's economic growth estimates and fueled fears of social upheaval among disgruntled homeowners and private investors who pushed their funds into developers' shadow-banking products.