Chinese property developers' shares and bonds soared on Tuesday after regulators lifted a ban on equity refinancing for listed firms, the latest support measure for a cash-squeezed sector that has been a key pillar of the world's No. 2 economy.
The move will make it easier for developers to access fresh funding, analysts said, but reviving demand from homebuyers would remain challenging amid persisting COVID-19 curbs that have triggered rare street protests across many Chinese cities.
The shares and bonds surge came after China Securities Regulatory Commission (CSRC) said on Monday it would broaden equity financing channels, including private share placements for China and Hong Kong-listed Chinese developers, lifting a ban in place for years.
The move is the latest regulatory easing as Beijing steps up support for the property business, a sector that accounts for a quarter of the Chinese economy. Many developers have defaulted on debt obligations racked up during a building boom and have now halted construction.
China's CSI 300 Real Estate Index climbed 9.4%, on track to post its biggest daily jump ever.
Meanwhile, Hong Kong's Hang Seng Mainland Properties Index clambered 9.2% higher. Shares of Longfor, Agile and China Vanke each jumped more than 12%, while Country Garden added 9.3%.
Nomura analysts said they believed sentiment towards the property development sector "should see notable lift due to the continued introduction of policy easing by the central government in the past one month."
They added, however, after the latest change, policy easing on the supply side has been "more or less exhausted", and the central government will have to find ways to boost demand for property.
Reviving property demand would be challenging under the "the recent worsening COVID-19 situation and protests in major Chinese cities, as well as the weakening housing price trends", the Nomura analysts wrote.
Street protests erupted in cities across China over the weekend, which analysts described as a vote against President Xi Jinping's zero-COVID policy and the country's strongest show of public defiance during his political career.
YUAN BONDS ROCKET
Despite the uncertain demand outlook, investors cheered the latest funding support measures.
Yuan-denominated bonds issued by Chinese developers CIFI Group, Guangzhou Times Holdings, Country Garden rocketed between 20% and 50% each on Tuesday.
Dollar bonds also traded up, though gains were milder. A tranche of Country Garden's dollar bonds due to mature by January 2025 added 5.6 cents.
Shares in Chinese investment banks also moved higher on hopes that the latest equity financing relaxation will potentially boost their share underwriting business. Citic Securities edged up by 3.5% in Hong Kong.
The Chinese banking sector index gained 5.3% on expectations of reduced credit risks from the developers. Bank of Ningbo jumped 10% - the daily limit - and China Merchants Bank advanced 9.1%.
"Most of the funding channels the property developers need are covered now," said Gary Ng, senior economist at Natixis. He said lifting the equity financing ban was a major move, after Beijing expanded a financing programme to support bond issuance.
"It is now up to whether the market, or basically the state players will actually support the sector," he said. If funds could be raised from state-backed investors, there will be meaningful consolidation in the property sector, Ng said.
Beijing suspended refinancing by listed property firms in August 2009 as part of its attempts to control surging home prices.
Regulators briefly lifted the suspension by granting approval to refinancing requests by a selection of property firms starting from 2013, but reimposed restrictions in 2016 to curb housing prices.
As per the CSRC's guidelines issued on Monday, eligible listed developers will be allowed to issue shares to buy property-related assets, replenish working capital or repay debts.
Listed developers can also now seek regulatory approval for merger and acquisitions, and access related financing.
Citigroup analysts wrote in a research note on Tuesday that the lifting of the ban on equity refinancing was "another significant positive support" for the sector's liquidity and facilitates the introduction of new strategic investors. (Reporting by Xie Yu; additional reporting by Jason Xue; Editing by Sumeet Chatterjee and Kenneth Maxwell)