Chinese Banks Halt Mezzanine and Supply Chain Financing for Property Developers

Yesterday, in China Real Estate Rage Is Back; Ghost Cities Everywhere; Offshore Yuan Plunges; Talk of Falling Real Estate Prices Across China I looked at stories of liquidation sales of homes, huge inventories in third- and fourth-tier cities, developments halted for lack of capital and rumors of suspended loans. Now it looks as though those loan suspension rumors have some basis in fact.

Industrial Bank Halts Property Loans, Securities News Says
Industrial Bank issued a notice before the Chinese Lunar New Year to suspend mezzanine financing and supply-chain financing in the real estate sector until the end of March, according to the report, which cited an image of the notice circulated online. China’s Lunar New Year holiday began Jan. 31 this year. A press officer at Fuzhou-based Industrial Bank said he couldn’t immediately confirm the notice.

Shares of property developers fell on concern that the curb may further limit their funding sources and push up borrowing costs as Chinese policy makers crack down on shadow banking. Industrial Bank may also restrict funding to local governments that rely on less-regulated financing, according to Huang Jie, an analyst at China International Capital Corp.

The move “is mainly attributable to falling risk appetite rather than regulatory guidance,” Huang wrote in a research note today. “We do not rule out that it will likely tighten financing related to local governments in the future.”

Curbing of property loans not a government action: Credit Suisse
The analyst in the video says that developers can still borrow money from WMPs or trusts and sell property to raise capital. However, he later goes on to mention the Hangzhou prices cuts as a potential problem for all the trusts and WMPs. It is a financial house of cards.

The cash crunch that emerged in June 2013 never ended, it only was temporarily alleviated by central bank actions.

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