China aims to speed up mergers and acquisitions among debt-ridden real estate companies to deal with risk

Photo: Xinhua

The People’s Government of Southern China’s Guangdong Province has held meetings with a number of real estate companies, likely paving the way for state-owned real estate companies to enter into merger and acquisition (M&A) deals with of troubled real estate companies, according to the financial information site reported.

The meeting took place after media reported that loan limits for debt-financed acquisitions would be lifted, to speed up mergers and acquisitions of debt-ridden real estate companies, an analyst said.

The loan rules for manufacturers, known as the “three red lines”, set debt thresholds and were introduced by Chinese regulators in 2020.

Since September 2021, under the “three red lines” rules, the Chinese real estate market has cooled and a number of developers, including Evergrande Group, have faced liquidity issues, affecting market sentiment.

“The Guangdong meeting underscored the government’s emphasis on divesting assets for troubled companies. As large real estate companies in Guangdong were involved in these talks with local authorities, it was an opportunity for companies with high debt and those with better financial standing to talk face to face. face to face, in order to speed up the process, ”Yan Yuejin, research director at the Shanghai-based E-house China R&D Institute, told the Global Times on Sunday.

Yan noted that the Guangdong policy will help address concerns about the acquisition of assets of distressed companies, and other provinces should learn lessons as they strive to manage real estate risks and promote healthy development of the real estate market.

Since the fourth quarter of 2021, mergers and acquisitions policies have eased. In December, the central bank of China, together with the China Banking and Insurance Regulatory Commission, issued a statement encouraging financial institutions to provide loans for real estate mergers and acquisitions and to support mergers of real estate companies. high quality and their acquisitions of projects from leading real estate companies.

“The bond market and real estate stocks are expected to be boosted by recent policies that will bring benefits to M&A transactions,” Yan said.

Zou Lan, a senior central bank official, said in late 2021 that mergers and acquisitions between real estate companies would be the most effective way for the industry to manage risk and improve liquidity.

Zou added that promoting structural adjustment in the real estate market through mergers and acquisitions will help debt-ridden companies cope with their debt risks and protect the legitimate rights of home buyers.

It will also encourage market players to pay more attention to risk assessment and management of their projects, fostering a virtuous circle and healthy development of the real estate sector, he said.

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John A. Bogar