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BEIJING, Sept 4 (Reuters) - China is relaxing its financing rules for listed property firms by allowing those that qualify to sell medium-term notes in the interbank market, three sources with knowledge of the matter said.
Money raised from the sale of notes can be used to fund new residential housing projects, supplement companies' operating cash flows and repay bank loans, the sources said.
A housing slowdown has forced a cash squeeze on some developers. A Reuters study in June showed cash to short-term-debt ratios for some 80 listed property companies were at two-year lows.
China's once-heated property market is experiencing its sharpest slowdown in two years as sales and prices turned south after an exceptionally buoyant 2013.
Sales have slowed, new construction has dropped off sharply and banks have turned more cautious about lending to developers and home buyers.
"It's another signal of the government supporting the property industry. And it also helps the banks to diversify risks from loans," said Raymond Ngai, Bank of America Merrill Lynch's head of greater China property research.
Cash raised from the bond sales cannot be used to buy land, the sources said.
The regulator of China's interbank market, the National Association of Financial Market Institutional Investors, declined to comment.
"Developers that qualify include those that participated in affordable housing projects and focused on sales of medium- and small-sized homes," one of the sources said.
"Qualified developers should also focus on sales of medium-and small-sized homes in their future businesses," the source said.
The new easing is expected to benefit mainland-listed companies more because onshore borrowings are more expensive.
There have already been cases of developers issuing interbank notes this year. South China City Holdings and Shanghai Shimao both issued medium-term notes in April, at rates of 7.5 to 8.4 percent.
Shares of Hong Kong-listed Chinese developers jumped on Thursday, China Vanke, the country's largest residential developer, up nearly 2 percent and China Overseas Grand Oceans jumping more than 3 percent.
Sunac China Holdings Ltd surged more than 6 percent, while Kaisa Group Holdings climbed nearly 4 percent, outpacing a 0.3 percent drop in the benchmark Hang Seng Index.
In spite of the strong share price gains, Bank of America Merrill Lynch's Ngai said the news would not have a significant impact on developers.
"It's positive news but it doesn't have a huge impact on the sector because what developers need most is money to purchase land. But this is still restricted."
Reporting by Xie Heng, Koh Gui Qing and Clare Jim; Editing by Simon Cameron-Moore and Eric Meijer