(Bloomberg) — China’s property market is bracing for a worsening crisis at state-backed China Vanke Co., as the builder struggles to convince investors it can avoid default in the months ahead without clearer signs of government support.
Once China’s largest developer and now a bellwether for the nation’s struggles to ease broader property woes, Vanke plunged in credit and stock markets this week. The builder’s local notes extended their declines Wednesday, with its bond due in May 2028 dropping as much as 29 yuan to 65 yuan, triggering brief trading halts.
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Its dollar bond due in 2027 also fell further after sliding a record 12 cents Tuesday. It last traded at a distressed level of about 40 cents, the lowest since January. Vanke’s stock price also dropped in afternoon trading, with its Hong Kong-listed shares down 5.8% to HK$3.90, the lowest in more than a year.
Vanke’s woes spotlight the broader challenges facing Chinese policymakers as they balance efforts to revive a housing market stung by record builder defaults while trying to avoid getting mired in rescuing individual firms. The country has been considering new measures to turn around the market, such as subsidizing interest costs on new mortgages, people familiar with the matter said last week. Yet the effects of easing measures in September last year faded after a brief recovery.
“If Vanke’s bonds default at this time, it would undermine the effectiveness of government rescue policies,” said Li Gen, a founder of Beijing G Capital Private Fund Management Center, which focuses on China’s high-yield bond market. “It may accelerate the home price declines, and the creditworthiness of other state-owned developers would come under scrutiny.”
Global banks mostly have dim outlooks for China real estate, which has been experiencing a renewed sales slump since the second quarter. UBS Group AG expects home prices to fall for at least another two years. Fitch Ratings said last month that new home sales by area could decline 15%-20% from their current level before the sector stabilizes.
As they try to cushion against the impact from debt problems, authorities are keeping a close eye on borrowers. Financial regulators are stepping up scrutiny of bond market violations, focusing on disclosure failures related to debt defaults, particularly in the real estate sector, according to a report in the official Shanghai Securities News.