Events
On January 20, the central bank announced that it would cut the one-year loan market quoted rate (LPR) from 3.8% to 3.7%, the second consecutive month; Reduce the five-year LPR from 4.65% to 4.6%. On January 18, the director of the comprehensive Department of national economy of the national development and Reform Commission said at a press conference that infrastructure investment should be carried out appropriately in advance, 102 major projects in the 14th five year plan should be accelerated, and the special bonds issued by local governments in the fourth quarter of last year should be implemented into specific projects as soon as possible in accordance with the requirements of “funds follow projects”.
On January 18, the director of the financial market department of the people’s Bank of China said at a press conference that since the second half of 2021, the risks of individual real estate enterprises such as Evergrande have become explicit, and financial institutions have experienced short-term stress reactions. The financial management department has focused on the following work: first, adhere to the principles of legalization and marketization, and cooperate with the Guangdong provincial government, relevant departments and local governments to resolve the risks of enterprises in danger; Second, guide banking financial institutions to accurately grasp and implement the prudent management system of real estate finance, maintain the stable and orderly release of real estate credit, and meet the reasonable financing needs of the real estate market; The third is to issue the notice on doing a good job in M & a financial services for risk disposal projects of key real estate enterprises to guide financial institutions to support risk resolution and industry liquidation in a market-oriented manner.
Comments
The double drop in LPR will help ease the pressure on the real estate market. The five-year LPR decline is a relaxation of the restraint of real estate regulation. This time, it is mainly aimed at the demand side. For just in need buyers, it may save loan costs, boost market confidence, stabilize and alleviate the pressure on the real estate market, help better meet the reasonable housing needs of residents, and better realize “real estate without speculation” and “common prosperity”.
We will steadily and orderly carry out real estate project M & a loan business, and focus on supporting high-quality real estate enterprises to merge and acquire high-quality projects of large real estate enterprises with risks and operational difficulties. The circular clearly defines the scope of M & A activities of real estate enterprises. Financial institutions encourage large-scale high-quality real estate enterprises to undertake debt acquisition of projects of enterprises in danger by issuing loans in a targeted manner without directly participating in transactions. High quality real estate enterprises are the object and subject of M & A loans, not limited to state-owned enterprises or central enterprises. From the perspective of loan delivery targets, the high-quality projects of large real estate enterprises with insurance and operating difficulties are the transaction targets. Real estate enterprises cannot take the opportunity to peel off the business of low-quality assets or use them for their own operation. The loan funds can only be used for the acquisition of high-quality projects of insurance real estate enterprises, and can not be used for the equity acquisition of insurance real estate enterprises or their own operation.
Project M & A between real estate enterprises is an effective market-oriented means for the real estate industry to resolve risks and realize industry liquidation. The central bank and the China Banking and Insurance Regulatory Commission have also organized major banks to actively and steadily promote the M & a loan business, and do not blindly withdraw and cut off loans for large real estate enterprises with risk and operating difficulties.
At the beginning of 2022, there have been many mergers and acquisitions in the real estate industry. On January 4, Sichuan Languang Development Co.Ltd(600466) announced that it would transfer the asset package with net assets of about 1.5 billion yuan to Jinke Property Group Co.Ltd(000656) subsidiary at a consideration of 1 yuan. On January 11, Shimao Group announced that it was discussing the sale of several properties with potential buyers to reduce the group’s liabilities.
The dark period has passed, and only by optimizing the financial structure can we achieve stability and prosperity: only by opening the channels of incremental financing can we improve the liquidity of enterprises. The policy attaches importance to timely supporting the bottom, avoiding the spread of systemic financial risks and the hard landing of the market. The concentration of leading development enterprises will be further improved, and small and medium-sized real estate enterprises with difficult capital turnover will be gradually squeezed out of the market. The most important thing for an enterprise is to maintain a healthy and high-quality financial structure and leverage ratio within the enterprise. Otherwise, if it encounters strong supervision again, the enterprise will have a stampede credit default risk again.
Risk tips
Tip 1: real estate regulation is stronger than expected.
Tip 2: sales fell more than expected.
