HONG KONG, Oct 21 (Reuters) - Chinese regulators are asking
property developers to provide more details about their debts
than markets had expected, as authorities look to tackle
unbridled borrowing in the real estate sector, according to a
document seen by Reuters.
Dubbed "the three red lines", regulators outlined caps on
debt-to-cash, debt-to-assets and debt-to-equity ratios at a
meeting in Beijing in August between 12 major property
developers and officials from the Ministry of Housing and
Urban-Rural Development and the People's Bank of China (PBOC).
The twelve companies, which collectively account for 28% of
the homes sold in the country so far this year, were selected
for a pilot debt reduction scheme as policymakers look to reduce
broader financial risks.
The new policy will effectively limit developers' annual
debt growth to around 15% on average.
Property sources had said they expected a rush to get around
the rules by moving more debt off balance sheets.
However, in a form that developers were asked to submit
every month, the companies are also being asked for details on
items outside the usual financing channels like bank loans and
bond issuance. They will need to provide debt figures on
off-balance sheet projects.
The contents of the document were confirmed by sources at
two of the 12 firms in the pilot, who asked not to be identified
due to the sensitivity of the matter.
Other debt information requested include details on projects
that give a financial entity guaranteed returns and buy-back
agreements - essentially a debt disguised as equity, as well as
the amount of securitisation of receivables in the supply chain.
"The government is monitoring everything now, unless you
want to cheat, but they will be able to tell from your monthly
figures," said a senior executive at one of the developers in
the pilot scheme.
According to Chinese media, the cap for the debt-to-assets
ratio will be set at 70%, the cap for net debt to equity will be
set at 100% and the developers should also have enough cash to
match their short-term liabilities.
The authorities have yet to announcement details of the
implementation, but the industry expects the rules to be applied
sector-wide in the first half of next year.
Pan Gongsheng, a PBOC vice governor, told a forum in Beijing
on Wednesday the central bank has the draft of an overall
assessment over property financing ready and it will make a
public announcement at the right time, without further
Analysts at ANZ estimate about one-fifth of real estate
companies with China A-shares have leverage ratios exceeding the
A sharp reduction in leverage could rattle credit markets
and weigh heavily on the property sector, a key driver behind
China's swift economic recovery from the coronavirus
China Evergrande Group, the country's most
indebted property developer, has been among those scrambling to
raise money, with fears of a cash-crunch sending its shares and
bonds skidding last month.
(Reporting by Clare Jim; Additional reporting by Cheng Leng in
Beijing; Editing by Kim Coghill)