Govt Reopens Approvals for Real Estate Share Sales

In another sign of the Chinese government’s determination to corral its unruly real estate market, two more developers received regulatory approval for new stock sales, during the same week that a private real estate developer collapsed after having exhausted its available sources of credit.

The decision announced on Tuesday by the China Securities Regulatory Commission to allow Tianjin Tianbao Infrastructure Co. (000965) and Joinuln Holding Co. (600745) to sell yuan-denominated A shares makes these the first new stock sales by real estate companies in about four years.

Tianbao, which is listed in Shenzhen, and Juinuln, which is listed in Shanghai, would both be selling their shares through private placements, which could provide the developers which much needed credit as a credit clampdown deprives developers of access to bank loans just as land prices have been reaching record levels.

Also this week, state-owned Greenland Group became the first property developer to go public on a mainland exchange since the government suspended approvals for such moves in 2010. Greenland’s new listing came through an asset swap with a smaller listed company, and could provide the Shanghai firm with much needed capital to fuel its ongoing string of overseas acquisitions.

Delineating the Loved and Unloved

Less fortunate than Tianbao, Joinuln and Greenland are many of the country’s smaller developers, who without access to public listings or bank loans are being caught in a credit squeeze as property prices cool down.

Privately owned Zhejiang Xingrun Real Estate collapsed earlier this week after it was unable to repay RMB 3.5 billion in loans. In 2010 Xingrun had made a record-breaking land purchase in the suburb of Ningbo where the company is based, and after being unable to execute the project and repay creditors, the company’s owner and its legal representative are both now being held by authorities on charges of “gangster funding.”

Many in the industry have pointed to the problems facing smaller developers who lack access to credit, with the CEO of one mid-sized developer predicting that 20 percent of China’s smaller real estate firms will be forced to close down this year.

A Lifeline for Listed Firms

The move to reopen the gates for new share sales does offer hope for listed developers however. In a report released yesterday, Ping An Securities said the moves to reopen shares sales by real estate developers “suggest that refinancing formally, unconditionally and fully reopens.”

China had put a stop to new share sales by developers since 2010 as part of its efforts to cool down an overheated real estate market and prevent formation of a bubble. The new listings indicate a change in tack towards allowing some mid-to-large sized firms renewed access to financing.