(Yicai Global) Aug. 24 -- Longfor Group Holdings intends to become the first private real estate company to issue a bond fully guaranteed by a state-owned enterprise in China to overcome its financing difficulties.

The property firm will tomorrow issue no more than CNY1.5 billion (USD219 million) of bonds, the first medium-term notes for Longfor this year, the Beijing-based company said in a statement yesterday. China Bond Insurance will guarantee the notes. The three-year bonds will have a coupon rate between 3 percent and 4.3 percent.

Chinese property developers have been having a hard time securing funding since the second half of 2021 despite the easing restrictions since last November as investors are wary of risks exposed by debt crises of firms such as China Evergrande Group and Fantasia Holdings Group. 

Longfor's move proves rumors of regulators promoting state-owned enterprises to guarantee the refinancing of housing enterprises. A pilot of bond financing guarantees was earlier reported to first cover Longfor, Country Garden, Gemdale, CIFI Holdings Group, Seazen Holdings, and Sino-Ocean Group Holding and later be expanded to others.

Bank of China International Holdings said that the guarantee provided by CBIC is an unconditional and irrevocable joint guarantee, and it is the strongest protection provided to protect the rights and interests of creditors. Moreover, CBIC can obtain remarkable policy support, it added. 

CBIC was jointly established by six state-owned enterprises under the guidance of the People’s Bank of China in September 2009, becoming the first professional institution to offer bond insurance in the country. It has CNY6 billion (USD874 million) of registered capital. The firm could provide a guarantee of up to CNY2 billion for a single property firm and if other partners join, the sum could rise to CNY3 billion, according to BOCI.

The situation is dire. From January to July, private housing enterprises issued overseas bonds of CNY9.3 billion, down 95 percent from a year earlier, based on data from the China Index Academy. Domestic bonds slumped 80 percent to CNY15.8 billion (USD2 billion).

In May, regulators suggested private real estate companies could deploy tools such as credit default swaps and credit risk mitigation warrants to secure financing. But the results have turned out meager. 

Longfor's financial buffer failed to spur a stock market rally. Its equity price [HK: 0960] dropped 4 percent to close at HKD24.30 (USD3.10). The shares have slumped by a third in value this year. 

Editors: Shi Yi, Emmi Laine, Xiao Yi