Country Garden Holdings Co.’s shares and bonds jumped as news that the distressed Chinese builder will make a draft list of firms eligible for financing support relieved concerns over liquidity woes.
Shares in Hong Kong jumped more than 14%. That came after its 5.625% dollar bond due 2030 rallied 40% to close at 7.1 cents on the dollar Wednesday, according to Bloomberg-compiled data. The developer’s dollar notes continued to rise Thursday morning, according to credit traders.
Authorities have been taking more forceful steps to end the nation’s property crisis, with the expected inclusion of Country Garden in the so-called white list showing Beijing’s pivot toward helping troubled builders. Country Garden’s plunge into default last month shook investor confidence as it showed few builders will be spared from the years-long housing market slump plaguing the economy.
China’s plan “underscores the importance it places on developers completing projects, and will help reassure suppliers, workers, and home buyers amid ongoing financing challenges,” said Chang Wei Liang, a strategist at DBS Group Holdings Ltd. “Debt investors could still face risks of restructuring, but there is some relief if financing helps to ward off risks of liquidation.”
Sino-Ocean Group and CIFI Holdings Group Co., which have also missed debt payments, are among the 50 developers in the list, Bloomberg reported Wednesday. Regulators are set to finalize the roster and distribute it to banks and other financial institutions within days, according to people familiar with the matter.
Country Garden, once the country’s largest builder by contracted sales, in October posted its biggest sales drop in at least six years. The slump raised concerns among potential buyers of its ability to complete projects amid a cash crunch. Sales are hovering around a sixth of their average monthly level in 2021 and 2022.
READ: Country Garden Sees Biggest Sales Drop in Years Amid Cash Crunch
While shares have rallied more 30% this month, it remains a penny stock with prices below HK$1. At its 2018 peak, they were worth more than HK$17. The gains in November track a broad uptrend in developer shares amid signs that support for the sector is broadening.
A Bloomberg Intelligence gauge of Chinese developers jumped more than 5% on Thursday, taking this month’s gain to about 14%.
“Most developers in China face a liquidity rather than solvency crisis, meaning they can survive if the government provides enough financing cash flows,” said Gary Ng, senior economist at Natixis in Hong Kong.
--With assistance from Alice Huang and April Ma.
