(Yicai Global) Nov. 30 -- Shares of Shimao and Fuxing Science and Technology rallied as the two Chinese homebuilders announced private placement plans to ease their liquidity difficulties after China’s securities regulator ended a 12-year ban on equity refinancing by property developers.

Shimao [SHA: 600823] and Fuxing [SHE: 000926] both jumped by the daily trading limit to close 10 percent higher. The shares of other developers also gained, with the Shenyin Wanguo Property Index touching a new high since April after moving up 8 percent yesterday.

Shimao intends to raise funds by offering shares to as many as 35 selected investors, the Shanghai-based major developer said yesterday. The funds will be used to ensure delivery of projects under construction, repay part of its debt principal and interest, and replenish working capital according to regulatory requirements.

Wuhan-based Fuxing made a similar announcement The builder has projects mainly in Wuhan, the capital of China’s central Hubei province, and surrounding cities, but also some in Beijing, Tianjin, Hebei province, the Yangtze River Delta, and the Chengdu-Chongqing economic area. The company had revenue of CNY10.9 billion (USD1.5 billion) from its real estate business last year.

The number of new shares will not exceed 30 percent of each company's total equity prior to the issuance, they said, without disclosing the exact size of the offerings.

The China Securities Regulatory Commission announced on Nov. 28 that for the first time in 12 years, developers will be allowed to refinance via the capital markets through the private placement of new shares, mergers and acquisitions, and overseas fundraising.

Following the announcement, several industry insiders already told Yicai Global that since the new scheme did not set a refinancing threshold, all listed real estate companies now can refinance through new share issues.

Shimao and Fuxing’s plans proved the point. In the case of Shimao, its assets quality is not ideal, since its controlling shareholder Shimao Property Holdings already unveiled an overseas debt restructuring plan in July, while some domestic debt had to be rolled over. Payment of several of the unit’s domestic debts was also delayed.

Fuxing's plan shows that smaller regional developers also have fundraising opportunities, said Yan Yuejin, research director at E-House China R&D Institute’s think tank center. 

The CSRC’s latest move will help relatively small developers. Its earlier changes to the refinancing rules mainly benefited large and relatively high-quality developers whose operations are still good, Yan added.

The easing of credit and bond financing for real estate developers announced earlier has been described by the Chinese media as the first and second arrows of a policy relaxation, while the easing of equity refinancing has been described as the “third arrow.”

Despite the encouraging signs, a real estate insider in eastern China told Yicai Global that the current policy package is mainly beneficial for real estate firms with good credit standing. For those lacking credit and collateral, the policy offers no substantial help and could even be a negative for those that have already defaulted, Yan added.

Editors: Tang Shihua, Emmi Laine, Xiao Yi