(Bloomberg) -- Two Chinese private developers are planning bond deals that come with derivative protection, in the latest sign of regulatory support to help ease select builders’ liquidity crunch.
Country Garden Holdings Co. and Midea Real Estate Holding Ltd. are planning new debt deals with separate issuance of derivatives that allow investors to buy partial or full protection against default. That may encourage investors to put their money in those notes due to the reduced risk that they won’t get their money back in an emergency.
The two property developers could become the first repeat issuers of such deals since May when the program emerged following the instruction of Chinese regulators. The two builders were among developers that had been selected by regulators to spearhead new issuance of such notes protected by either credit-default swaps or credit risk mitigation warrants, REDD had reported in May.
The planned bond sales are a reaction to China’s property crisis, which has shut most private developers out of fundraising in domestic and offshore debt markets. Authorities are trying to ensure that builders have enough funds to complete construction, after housings projects got stalled this year by builders that couldn’t pay their bills and as mortgage boycotts spread.
The packaged offerings give bond buyers the option to purchase credit protection contracts, similar to CDS, which offer insurance against default linked to a specific bond or loan obligation.
Country Garden declined to comment. Midea didn’t immediately respond to an inquiry seeking comment.
China launched a new credit protection tool for private developer debt in May, when bookbuilding for the nation’s first credit protection warrants for such firms’ debt was completed, the Shenzhen Stock Exchange said in a statement at the time. The Shanghai Stock Exchange also said in July that it had launched a pilot for portfolio credit protection contracts to support bond financing of real estate enterprises.
A unit of Country Garden is also considering selling 1 billion yuan ($142 million) of three-year notes guaranteed by state-backed China Bond Insurance Co. in mid- or late-December.
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