China sours on tool that helped real estate firms overhaul debt

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China is casting doubt on one of the key mechanisms that helped keep several major property developers including Country Garden Holdings Co out of liquidation.(Sept 9): China is casting doubt on one ...

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MCBs allow distressed developers to exchange debt for securities that can later be converted into equity, helping cut repayment burdens while giving creditors a chance to benefit from any recovery. \n\nThe move could undermine restructurings that have already been negotiated and limit one of the few remaining tools available to an industry that defaulted on around US$130 billion of debt.\nCompanies don't need to seek CSRC approval before issuing offshore MCBs. Instead, they only need to register these bonds with the regulator afterwards.\nThe National Development and Reform Commission and State Administration of Foreign Exchange are also involved in various aspects of the approval for certain MCBs. The involvement of multiple regulators has complicated questions over which agency would be responsible if any of the MCBs instruments were to run into trouble, one person said. \nRepresentatives for the CSRC, the NDRC, SAFE and Sino-Ocean didn't respond to requests for comment. Country Garden declined to comment. \nWhile it's unclear whether the rejections are a procedural holdup or signal a longer halt, some property firms and financial service providers are already putting the brakes on their restructuring plans given the uncertainty, the people said.\nThe pushback against MCBs may reflect unease among regulators that so many new shares will be created when the MCBs convert: Chinese developers' offshore debt restructurings are ultimately set to create over 27 billion new shares through the instruments, according to estimates by Bloomberg Intelligence analysts Andrew Chan and Daniel Fan. The tools sharply dilute equity and weaken bondholder recovery, they added.\n\nMore than five years since China's property crisis began, many of the country's developers are still in the process of restructuring their debt. \nSunac China Holdings Ltd has finished a second round of debt restructuring, while CIFI Holdings Group Co is weighing a similar move, underscoring the lingering depth of the property downturn.\nLogan Group Co secured Hong Kong court approval in August to proceed with its restructuring scheme. Central China Real Estate Ltd and Ronshine China Holdings Ltd are among the developers still working to finalise their plans.\nLast month, China unveiled a slew of measures to boost financing support for homebuyers and developers. But the changes were small in isolation, stopping short of the big bang stimulus that some economists think is necessary to bring an end to the real estate slump.\nChina's economy showed widespread weakness in recent data, with house prices continuing to tumble. Many economists estimate that growth slipped further below the government's annual target, sparking a call from Premier Li Qiang to ramp up supportive measures.\nUploaded by Chng Shear Lane","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":false,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"}}}