China’s government is authorizing developer debt sales for the first time in five years in a bid to avoid bankruptcies as the property market cools.

Jiangsu Future Land Co., a builder of homes in eastern China, sold 2 billion yuan ($323 million) of five-year “AA” rated bonds last week to yield 8.9 percent. That’s less than the average 9.73 percent on trust products that many developers relied on for financing after authorities stopped approving onshore note issuance in 2009.

The China Securities Regulatory Commission reversed course in April when it granted four real estate companies the right to sell the securities, after the collapse of a builder south of Shanghai the previous month underscored financing strains. The government allowed the first mortgage-backed debt sale since 2007 last week, in the latest step to ease restrictions on the industry as new home prices drop in a record number of cities.

“The issuances are obviously an easing signal,” said Xu Hanfei, a bond analyst in Shanghai at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “The CSRC will probably approve more note sales as long as developers have fund-raising demand. It would be helpful because bond costs are lower than trusts.”

The first builder to sell debentures onshore after the regulator began granting approvals again this year was Tianjin Realty Development Group Co. The residential and commercial developer issued 1.2 billion yuan of “AA” rated seven-year bonds in April. That was the first sale of property bonds regulated by the CSRC, which regulates stocks and bonds, since an offering by Guangzhou Donghua Enterprise Co. in December 2009. 

The securities regulator has also approved bond sales by Wolong Real Estate Group Co., Hubei Fuxing Science & Technology Co., Chongqing Yukaifa Co. and Shanghai Jinqiao Export Processing Zone Development Co. since April.

The pressure on Chinese real estate companies was underscored by the collapse in March of Zhejiang Xingrun Real Estate Co. Developers including China Vanke Co., the nation’s biggest, and Greentown China Holdings Ltd., the largest in the eastern province of Zhejiang, have cut property prices since then to boost sales. The slump comes as economic growth is set to cool to 7.4 percent this year, the slowest in more than two decades, according to the median estimate of economists surveyed by Bloomberg.

The move to allow Chinese builders to tap the onshore note market, instead of raising funds from so-called shadow-banking products such as trusts or through international bonds, parallels the first regulatory approvals for new-stock sales in about four years. The CSRC said in March that Tianjin Tianbao Infrastructure Co. and Join.In Holding Co. were allowed to sell yuan-denominated A shares in private placements.

Jiangsu Future Land said it will spend the proceeds from its bond sale to repay bank loans and replenish working capital, according to the prospectus. Tianjin Realty Development said it will use the money it raised to invest in a lower-cost housing project and repay borrowings.

“Property companies are facing huge debt burdens,” said Sun Binbin, a bond analyst at China Merchants Securities Co. in Shanghai. “If the regulator hadn’t eased, there probably would have been more defaults.” (Bloomberg)