China steps in to help another distressed real estate developer

A Chinese state-owned company will take more than a quarter of a cash-strapped real estate developer as part of Beijing’s efforts to help some domestic real estate companies facing liquidity issues that are limiting their ability to service debts.

China South City Holdings 1668,
+ 5.80%
will raise 1.91 billion yuan ($ 299.71 million) by placing shares in Shenzhen construction and development group SEZ or SZCDG, the developer said on Friday.

When completed, SZCDG will hold a 29.28% stake in China South City, making the state-owned enterprise a unit under the Supervision and Administration Commission of Shenzhen State-owned Assets, the largest shareholder of the property developer.

Credit defaults are mounting in China’s real estate sector as companies come under pressure from slump in home sales, government restrictions on borrowing and a bond market liquidation that has nearly shut the market for long. new transactions.

Earlier this month, the conglomerate China Evergrande Group 3333,
+ 6.00%
sought help from the government of his home province, Guangdong, over cash flow issues. The company, which is the world’s most indebted developer with around $ 300 billion in liabilities, has established a risk management committee that includes representatives from several state-backed entities to work and engage with. Evergrande’s creditors.

China South City will issue 3.35 billion new shares to SZCDG for HK $ 0.57 per share, a 17.39% discount from the last traded price of HK $ 0.6900 per share.

The proceeds from the stock offering will be used to repay debt, the company said, adding that it would benefit from the state-owned company’s financial strength.

The underwriting “would provide the company with the ability to expand its shareholding and capital base, reduce funding costs and improve the debt maturity profile, as well as diversify funding channels,” said China South City.

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