Clare Jim, Julie Zhu and Xie Yi

HONG KONG (Reuters). China has created nationwide guidelines to allow property developers access funds still in escrow accounts to help ease a cash crunch.

China Evergrande Group is the global leader in property development, but it has become the worst-performing developer in China. Its liabilities total $300 billion.

According to people speaking on condition of anonymity because of the sensitive nature of the issue, developers would be able to use the funds in an escrow account that is currently managed by local governments without central oversight.

“An abrupt clampdown by the local authorities on escrow account after Evergrande’s crash choked liquidity to some high quality names. Nan Li (associate professor of finance, Shanghai Jiao Tong University) said: “A correction by the Central Government is Much Needed.”

Chinese developers can sell their residential properties before they are completed, but must put the funds in escrow. One person said that the cash in escrow accounts for between 50% and 70% of pre-sale funds of Chinese developers, but did not give an estimated figure.

Three people spoke out to say that the Ministry of Housing and Urban-Rural Development, which is the main regulator of the sector, and others are helping to draft the rules.

The people stated that Beijing wants to make them available as soon as January ends in an effort to avoid a larger crisis.

After the Reuters report, the Mainland Property index gained 1.6% and closed nearly 6% higher Wednesday afternoon. Country Garden Holdings, Sunac China Holdings, Shimao Group Holdings and Sunac China Holdings were the top-performing Chinese property developers, with gains of 11.3% and 7.6% respectively.

U.S. dollars bonds were also issued by Sunac, Country Garden and other developers following the report.

China’s second largest economy after the United States, about 25% is in the property sector.

Requests for comments were not received by the State Council Information Office and Ministry of Housing and Urban-Rural Development immediately.

CASH CRUNCH

Because of the fear of contagion following the news about Evergrande’s debt issues, many local governments have restricted withdrawals to escrow accounts for 2021.

Some municipalities have reduced withdrawal restrictions from late last year. However, one source claimed that because there are no nationwide guidelines, enforcement in many cities has already been too harsh.

Three sources claim that the new rules will allow developers to borrow escrow money to finance unfinished constructions and later for other purposes.

According to the fourth source, these rules will also prioritize the repayment of offshore debt for developers who have better credit scores.

Nomura projects that Chinese developers will need to satisfy onshore and offshore maturities worth 210 billion Yuan ($33 billion each) in the first quarter of 2022, as opposed with 191 billion in the fourth quarter of 2021.

In recent weeks, Beijing has taken steps to restore stability in the property sector including making it easier for state-backed developers to buy up distressed assets https://www.reuters.com/business/shimao-group-unit-talks-with-lender-missed-trust-loan-payment-2022-01-07/#:~:text=SHANGHAI%2FHONG%20KONG%2C%20Jan%207,liquidity%20crisis%20in%20the%20sector of indebted private firms, a source told Reuters this month.

A senior representative of the People’s Bank of China said Tuesday that the bank will maintain consistency, stability, and continuity in property-related policies.

Zou Lan from the PBOC’s head of financial market, said that property sales and financing are slowly returning to normal and market expectations are improving.

($1 = 6.3510 )