(Yicai Global) Dec. 19 -- Country Garden, China's biggest real estate developer by sales, is reportedly set to become the country’s second builder guaranteed by a domestic bank to secure a loan from an overseas lender.
Foshan-based Country Garden may get a guarantee of about USD300 million from Industrial and Commercial Bank of China, Securities Daily reported today, citing unspecified recent information.
Longfor Group Holding received an assurance for about CNY700 million (USD100.3 million) from Bank of China on Dec. 9, making it the first Chines builder to get such support following market speculation that four state-owned banks -- BoC, China Construction Bank, ICBC, and Agricultural Bank of China -- would help some developers secure overseas bank loans from using domestic assets as collateral.
Under this arrangement, a Chinese lender’s mainland branch makes a financial guarantee to an affiliated firm of the developer registered outside of the mainland or an offshore business in which the builder owns a stake in order to secure loans from overseas banks. The build also must pledge assets as collateral to the Chinese lender.
This system shows the government's support for private developers and its efforts to help those at risk, Securities Daily added, citing a person from a large real estate firm. This will help improve the offshore credit market environment for developers that have not defaulted as well as restore and boost offshore market confidence, the person added.
Low-risk developers in good credit situations will have a better chance of getting this kind of support, while those at risk of default will be less likely to pass the application review, industry experts told state media.
There will be few eligible developers given that the domestic real estate market is still in a downturn, with operation and assets conditions not ideal for most, said Xiao Yunxiang, senior analyst at Tospur Real Estate Consulting.
There will be few eligible developers given that the real estate market is still in a downturn, with operational and asset conditions not ideal for most, said Xiao Yunxiang, senior analyst at Tospur Real Estate Consulting.
“From the perspective of collateral, [domestic guarantees and foreign loans] will have a certain scale, but it will be very hard to implement them widely,” noted Huang Lichong, chief executive at Wilson Capital International.
The main reason is that developers must pledge a lot of cash or top-notch assets to a bank’s onshore branch, but some assets have already been used for financing and many banks may not accept property in this way, Huang added.
