What China’s Three Red Lines Mean for Property Firms

The People’s Bank of China and the Ministry of Housing announced in August that they’d drafted new financing rules for real estate companies, but have said little more. But the media reports and people familiar with the upcoming guidelines have said developers wanting to refinance will be assessed against three red lines, or thresholds:

• There will be a 70% ceiling on liabilities to assets, excluding advance proceeds from projects sold on contract;

• a 100% cap on net debt to equity;

• and they must have a cash to short-term borrowing ratio of at least one.

Developers will be categorized based on how many limits they breach and their debt growth will be capped accordingly. If all three are breached, the company won’t be allowed to increase its debt in the following year, according to a report by 21st Century Business Herald. If it passes all three, it can

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What China’s Three Red Lines Mean for Property Firms: QuickTake

china homes real estate property

Photographer: Qilai Shen/Bloomberg

The danger lurking in China’s debt-laden real estate sector was never so clear as in late September, when word of a possible cash crunch at China Evergrande Group, the world’s most indebted property developer, sent investors running for the exits. With seven more of the 10 most-indebted developers also based in China, policymakers in Beijing have drafted what state-run media are calling “three red lines” — metrics regarding debt that developers will have to meet if they want to borrow more. The new approach promises to be a game changer for a sector that accounts for about 29% of economic output.

1. How will it work?

The People’s Bank of China and the Ministry of Housing announced in August that they’d drafted new financing rules for real estate companies, but have said little more. But the media reports and people familiar with the

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China’s Too-Big-to-Fail Real Estate Giant Pulls Back From Brink

(Bloomberg) —

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China Evergrande Group took a major step toward avoiding a cash crunch that had threatened to roil the nation’s $50 trillion financial system and reverberate across global markets.

After a turbulent few days during which banks, bondholders and senior government officials became increasingly alarmed about Evergrande’s financial health, the world’s most indebted developer said it reached an agreement with a group of strategic investors to avoid repayments that would have placed a sizable strain on the junk-rated company’s balance sheet.

The deal buys crucial time for Evergrande to rein in a complex web of liabilities that some analysts have said makes the property behemoth too big to fail. Evergrande owes $88 billion to banks, shadow lenders and individual investors across China and has borrowed $35 billion from bondholders around the world. More than 2 million homebuyers have given the company down payments on yet-to-be-completed properties.

Relief

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Xi’s portrait adorns new homes for China’s poor

LIANGSHAN, China (AP) — Communist Party leader Xi Jinping’s smiling visage looks down from the walls of virtually every home inhabited by members of the Yi minority group in a remote corner of China’s Sichuan province.

Xi has replaced former leader Mao Zedong for pride of place in new brick and concrete houses built to replace crumbling traditional structures in Sichuan’s Liangshan Yi Autonomous Prefecture, which is home to about 2 million Yi.

A considerable cult of personality has developed around Xi since he took over the ruling party in 2012. Millions of books containing his speeches have been distributed and an array of items from decorative plates to key chains display his image and that of his glamorous military singer-wife, Peng Liyuan, who also features in some of the posters hung in Yi houses.

Hanging portraits of Chinese leaders in private homes has generally declined since the days of

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AP PHOTOS: Xi’s portrait adorns new homes for China’s poor

Updated

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