As the South China Morning Post (SCMP) reported, some 60 banks, state-owned and small county-level lenders, have extended a 4 trillion yuan ($573 billion) line of credit to about 100 developers since December 18. The ‘three arrows” measures aim to rescue the sinking property sector via bank credit, bond issuance, and equity financing. 

Reuters said that the People’s Bank of China (POBC) pledged at least $162 billion in credit to developers. However, with Beijing unveiling a liquidity package dubbed “three arrows” that offers hope to the battered sector, it is unlikely that every developer will benefit.

First, China’s support plan is not widely applied but selective, with clear goals.

Reuters cited sources familiar with the matter as saying that POBC was drafting a “white list” of good-quality and systemically important developers. These companies would receive broader support from Beijing to improve their balance sheets, which means other companies are still struggling.

China Evergrande, Sunac China Holdings, Zhongliang Holdings, and Kaisa Group Holdings have yet to receive any help from the government. Albert Yau, the chief financial officer of Zhongliang Holdings, claimed there was no “mercy” from the banks. This company defaulted on a total of $200 million in November. 

According to  , Chinese authorities wanted to keep good quality developers and to deleverage the sector to correct the oversupply situation. The manager added that both state-owned and private enterprises would play the role. 

Second, despite the above support, Chinese real estate developers still face many difficulties.

SCMP cited Bloomberg’s data. These developers still need to handle $292 billion of onshore and offshore borrowings to be cleared through the end of 2023, with US$72.3 billion due in the coming quarter.

According to Fitch Ratings, China’s private developers face greater liquidity risks related to their debt structure as banks and other creditors are reluctant to lend. As a result, it leads to shorter maturities than their sovereign peers.

Private-owned China Fortune Land Development and Greenland Holdings both planned to raise new shares to raise funds, and Greenland Holdings planned to increase the funds to 1.4 billion yuan ($200 billion). However, according to SCMP, only some struggling developers have been this fortunate. 

Carol Lye, associate portfolio manager with Philadelphia-headquartered Brandywine Global Investment Management, said, [quote] “Not everyone will survive, some will just die,” [end quote]. She added that 5% to 10% or more of the companies would fold, depending on how much financing they could get.  

According to Ares SSG, a subsidiary of Ares Management, the view that many struggling developers need to receive adequate financial support is correct.Edwin Wong, managing partner and CEO of Ares SSG, claimed that what the government mandates versus what is really being channeled would become evident in time.

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