Equity measure seen stabilizing real estate companies' finances

China's top securities regulator's green light on Wednesday for Chinese property developers to get listed through reverse mergers with already listed companies is a follow-up on the Central Economic Work Conference's call last week that support should be provided for the stable growth of the real estate industry, market observers said on Thursday.

In a statement on Wednesday, the China Securities Regulatory Commission said it will ensure support for the real estate market to promote its stable development. The commission said it will better implement the existing measures for property developers' equity financing, allow reverse mergers of eligible real estate enterprises, and approve housing-related restructuring among listed property and construction companies.

"Backdoor listings can provide a new channel for unlisted property developers' equity financing, and at the same time create an opportunity for listed real estate enterprises to restructure and improve their balance sheets," said Liu Shui, head of research with the China Index Academy.

Liu said the need to improve the balance sheets of listed real estate enterprises has been reaffirmed recently, and equity financing is regarded as the most direct and effective solution.

No IPO has been made by a property developer in the A-share market since 2010, according to the National Business Daily.

On Nov 28, the CSRC announced a slew of measures as part of its policy support to adjust and optimize equity financing for property enterprises. The measures included ending a 12-year-long suspension of refinancing and mergers and acquisitions.

These moves are aimed at strengthening property developers with sufficient financing solutions so as to ensure the stable development of the entire industry.

Since then, more than 20 listed property enterprises have announced plans to raise funds from various sources, Liu said.

The commission also stated that it will implement policy support with increased efforts and at a higher speed to facilitate the development transition of the real estate industry.

With these supportive measures, property developers sticking to core business and having stable operations will improve their balance sheets, and achieve a virtuous circle in their business and assets, said Li Yujia, chief researcher at the provincial residential policy research center of Guangdong.

Li said the latest policies should not be regarded as a bailout for failed or weak companies but as efforts to promote the transition of property development to a mode based on risk control and stability.

"With improved balance sheets, prime property developers will become more motivated to seek new business models," Li said.

The CSRC also stated it will facilitate the issuance of real estate investment trusts or REITs based on government-subsidized rental housing.

The rental housing REITs can revitalize existing assets and reduce risks for enterprises holding a large amount of heavy assets, enabling them to transform their operations and business models with the freed-up capital. Such REITs can also further attract more real estate enterprises to business opportunities in government-subsidized rental housing, Li said.