China’s financial authorities have called for domestic banks to provide greater support to the merger and acquisitions (M&A’s) of troubled companies in the Chinese real estate sector, as the Evergrande Group debt crisis continues to cause trepidations for markets.
The Chinese central bank and the China Banking and Insurance Regulatory Commission (CBIRC) recently issued the “Notice Concerning Effectively Performing Key Real Estate Enterprise Risk Disposal Project M&A Financial Services” (关于做好重点房地产企业风险处置项目并购金融服务的通知).
The Notice calls for banks to “undertake merger and acquisition financing operations in an appropriate and orderly manner, and provide focused support to high-quality real estate enterprises with regard to high-quality projects for the merger and acquisition of large-scale real estate enterprises that have risk issues or challenges.”
Financial News said that the intention of the Notice is to dispel the concerns of those enterprises who have been willing to take over risk-affected enterprises, but who still have trepidations about the market environment.
In addition to encouraging “high-quality project M&A’s,” regulators also hope to dispel the concerns of banks with regard to M&A financing.
The Notice covers six key areas including:
- Calling for banking sector financial institutions to appropriately undertake real estate project acquisition lending operations in an orderly manner, with focused support for high-quality projects involving high-quality real estate enterprises undertaking mergers and acquisitions of large-scale real estate enterprises that are challenged or have risk issues.
- Expanding the vigour of support for bond financing. Supporting the issuance of debt financing instruments on the interbank market by high-quality real estate enterprises, to raise funds to use for the merger and acquisition of key real estate enterprise risk projects. Encouraging banks to actively provide services for the issuance of debt financing instruments for enterprise M&A’s. Encouraging banks to invest in M&A bonds, M&A bills and other debt financing instruments.
- Actively providing financial advisory services for M&A’s. Encouraging banks to employ their advantages in terms of customer networks and channels, integrated lending, investment banking and financial market services to provide financial advisory services, and strengthen cooperation with securities companies, accounting firms and other third party institutions.
- Raising the efficiency of M&A services. Accelerating the review and approval procedures for the M&A loans of key real estate enterprise projects. With regard to projects for which risk is controllable, launching due diligence and loan review procedures in advance.
- Effectively performing risk management. Financial institutions must assess the regulatory compliance of projects, strictly abide by the regulatory requirements for real estate development loans, and strengthen risk controls and post-loan management for M&A loans.
- Establishing reporting and promotional systems. Banks must establish reporting systems for key real estate enterprise project M&A loans, and submit monthly reports to both the Chinese central bank and CBIRC on the undertaking of M&A financial services, as well as existing problems and recommendations.
The Chinese central bank and the State-owned Assets Supervision and Administration Commission (SASAC) have already arranged meetings with large-scale private and state-owned enterprises in the real estate sector, to provide policy guidance on M&A’s with imperilled and challenged real estate companies.
The Chinese central bank and CBIRC have also met with major banks to encourage them to provide M&A lending services, as well as refrain from “blindly withdrawing loans and cutting loans” to large-scale real estate enterprises suffering from risk issues.