Chinese regulators curb offshore loans for local real estate companies, Bloomberg reports

Chinese regulators are curbing mainland firms from adopting a refinancing structure, known as "1+N", for domestic real estate firms or cross-border borrowers using mainland property as collateral, Bloomberg reported, citing people familiar with the matter.

The people said that the National Development and Reform Commission (NDRC) has in recent months informed some bankers to restrict real estate companies from using the "1+N" offshore loan structure, further reinforcing recent regulatory efforts to tighten oversight of overseas borrowing.

The initial term of the debt is typically 364 days under the structure, with an option for further rollover. Borrowers, particularly property developers, will then sign loan agreements before obtaining approval for debt quotas from the NDRC. The structure helped developers build a funding buffer before securing formal quotas, as financing delays have become more common due to China tightening approval for overseas borrowing quotas on bonds and loans with maturities of one year or longer. 

NDRC is seeking to pressure companies and bankers to plan debt refinancing earlier in order to better manage risks, the report said. Other industries have not yet been affected by the new restrictions.

The department has previously required borrowers to provide more detailed information on repayment plans and fund usage, as part of its enhanced regulatory measures. This has prolonged the approval process for overseas bond and loan financings with maturities of one year or more to a duration of four to six months.

The tightening of oversight has prompted some Chinese companies to shift their focus to issuing short-term bonds, pressuring them to balance investment needs with cash flow.
 

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