(Yicai Global) Dec. 12 -- Longfor Group Holding has become the first of China’s real estate developers to receive funding from a Chinese state-owned bank to pay back overseas debt.

Bank of China extended a CNY700 million (USD100.2 million) offshore loan to Longfor, with the lender’s Chongqing branch making a financial guarantee to the builder and BOC Hong Kong offering loan financing to the firm’s overseas units with Chinese yuan-denominated assets as collateral, Longfor said on Dec. 9.

In another statement released the same day, the Beijing-based developer said it had fully paid off all of the USD300 million in senior notes due next year.

Longfor earlier obtained a CNY20 billion (USD2.9 billion) mortgage bond credit from China Bond Insurance, and then issued a CNY2 billion (USD286.4 million) medium-term note with an interest rate of just 3 percent, jointly underwritten by six major Chinese lenders.

There was market speculation last week that four state-owned banks -- Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China -- would help some property developers, including Longfor, repay overseas liabilities using their domestic assets as collateral.

China’s banks should support the overseas financing of real estate companies through cross-border credit enhancement, while the overseas branches of commercial lenders should increase their support for the loan business of high-quality real estate firms, Pan Gongsheng, deputy governor of the People’s Bank of China, said on Nov. 21 at a banking conference jointly held by the PBOC and the China Banking and Insurance Regulatory Commission.

The banks that assist developers with their offshore financing business will help them repay offshore debt, ease the pressure on their cash flow, and reverse the negative expectations of global investors in China’s real estate sector, according to some analysts.

Though the domestic financing situation is improving, developers still face obstacles with offshore financing and solvency. Since November, the real estate industry has seen another wave of defaults on US dollar bonds, with Cifi Holdings failing to repay USD414 million in principal and interest on maturing foreign debt and Central South Construction Group announcing a halt to its US dollar bond payments.

Chinese developers’ US dollar bond issuance plunged this year, with 100 firms selling less than 30 percent of last year’s amount, according to China Real Estate Information. With this round of defaults, domestic developers’ credit collapsed in the overseas bond market, and their overseas ratings have all been downgraded.

As the industry is still at the peak of debt repayment, the difficulty and cost of issuing US dollar bonds has increased significantly.

Some property firms in sound financial positions are still actively repaying overseas debt and maintaining their credit levels, while others are discussing restructuring plans with foreign creditors. China Fortune Land Development has nearly USD5 billion of bonds issued by its units abroad. Holders of 84 percent of the total principal have already inked restructuring deals.

Editor: Futura Costaglione