(Yicai Global) Sept. 30 -- Shares in Guangzhou R&F Properties surged 17.25 percent today after the Chinese property developer and two of its major shareholders agreed to invest CNY21.2 billion (USD3.3 billion) to set up a joint venture for property-related investments that will help bring the developer’s borrowing in line with regulatory requirements.

R&F Properties’ share price [HKG:2777] closed at HKD5.98 (USD0.80).

The new arrangement will improve R&F Properties’ working capital and financial structure, the Guangzhou-based developer said yesterday. R&F Properties will inject CNY10.8 billion (USD1.7 billion) and hold 51 percent equity, while Chairman Li Sze Lim and Co-chair Zhang Li will invest CNY10.4 billion for a 49 percent share.

As part of this investment, Li and Zhang will provide HKD8 billion (USD1 billion) in financial support, the firm said on Sept. 20. This will go a long way in bringing down the firm’s net gearing ratio, or debt-to-capital ratio, which stood at 103 percent as of Aug. 31, higher than regulators’ leveraging cap.

In the first-half, R&F borrowed CNY143.3 billion (USD22.2 billion), a 10 percent decrease from the same period last year. Some 36 percent of the borrowing was to pay back debts due this year, down from 40 percent at the end of 2020. R&F Properties has CNY19 billion (USD3 billion) of debt maturing next year.

Last July regulators set up ‘three red lines’ to mitigate risks in the real estate sector. These are a 70 percent upper limit of debt-to-asset ratio after excluding advance receipts, a 100 percent upper limit for net debt ratio and a one-to-one down limit ratio for cash against short-term debts.

Editor: Kim Taylor