China Aims To Accelerate M&A among Debt-Ridden Real Estate Firms

The People's Government of South China's Guangdong Province has held meetings with a number of property enterprises, likely paving the way for state-owned real estate enterprises to carry out merger and acquisition (M&A) deals with troubled property firms, financial news site cls.cn reported. The meeting came after media reports said that loan limits for debt-financed acquisitions will be removed, as a measure to accelerate the M&A of debt-ridden property firms, an analyst said. The loan rules for builders, known as "three red lines," define thresholds on debt and were introduced by Chinese regulators in 2020. Since September 2021, under the "three red lines" rules, China's property market cooled, and a number of developers, including Evergrande Group, struggled with liquidity issues, affecting market sentiment. "The Guangdong meeting underscored the government's focus on asset disposals for troubled enterprises. As large real estate enterprises in Guangdong were involved in these talks with the local authorities, it was a chance for highly indebted enterprises and those in better financial status to talk face-to-face, in order to accelerate the process," Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Sunday. Yan noted that Guangdong's policy will help address concerns about acquiring assets of troubled companies, and other provinces should learn from it as they strive to address property risks and promote the sound development of the property market. Since the fourth quarter of 2021, policies involving M&A have eased. In December, China's central bank, together with the China Banking and Insurance Regulatory Commission, released a statement encouraging financial institutions to make loans for real estate M&As, and to support the mergers of high-quality real estate firms and their acquisitions of the projects of key real estate enterprises. "The bond market and real estate stocks are expected to get a boost from recent policies that will bring benefits for M&A deals," Yan said. Zou Lan, a senior official from the central bank, said at the end of 2021 that M&A deals among real estate enterprises will be the most effective way for the sector to handle risks and improve liquidity. Zou added that promoting the structural adjustment of the property market via M&A deals will help debt-ridden enterprises address their debt risks and protect the legitimate rights of house buyers. It will also encourage market players to pay more attention to risk assessments and the management of their projects, promoting a virtuous cycle and the sound development of the real estate sector, he said.