CREDIT RISK
Vanke‘s yuan bond due January 2028 ended down 26 per cent on Monday, while another onshore bond due May 2028 dropped 11 per cent. Shares of Vanke in Shenzhen and Hong Kong 2202.HK lost around 3 per cent and 5 per cent, respectively, on the day.
The developer’s first attempt to seek approval to delay payment via a voting process that ended late on Friday required support from at least 90 per cent of the noteholders. The proposal to postpone principal and interest payments by a year without extra credit support was rejected with 76.7 per cent opposing it.
Two other proposals for the same bond, which included credit enhancement measures, had drawn some backing, with one winning 83.4 per cent approval, but neither met the 90 per cent threshold and were also rejected.
Nevertheless, that lent optimism to some analysts.
“We think Vanke‘s bondholders may demand more credit enhancement or earlier repayment of some principal for the bonds due on December 15,” said Jeff Zhang, Morningstar equity analyst, adding a deal could be reached in the next five days.
“That said, Vanke still relies heavily on external liquidity support even for the interest payment. Hence, the credit risk of Vanke remains elevated.”
FINANCIAL TROUBLE
The setback for Vanke, one of China’s highest-profile developers with projects in major cities, comes after some of the country’s best-known developers have defaulted in recent years.
Among the companies hardest hit by China’s property crisis that started in 2021 was former giant China Evergrande, which was ordered to liquidate by a Hong Kong court and was delisted this year after tighter regulations sparked a liquidity crunch.
The sector, which once made up a quarter of China’s gross domestic product, has been hit by slowing demand, with homebuyer sentiment hurt by developers’ defaults, weighing on the growth of the world’s second-largest economy.
China’s new home prices extended declines in November, official data showed on Monday, indicating that a recovery in demand remains elusive despite the government promising to stabilise the sector.
Vanke is about 30 per cent owned by state-owned Shenzhen Metro Group. That state backing had been considered by some analysts as sufficient to stop the company from sliding into severe financial trouble.
“If Vanke ultimately defaults, we think the ramifications on the China property sector can be significant. Investors may be more concerned about the balance sheet and government’s attitude towards bailout for even the ‘safe names’,” Morningstar’s Zhang said.
In its filing on Monday, Vanke said interest during the grace period will be calculated on the outstanding principal and unpaid interest, using the note’s coupon rate plus an additional 5 basis points.
Separately, the developer is also seeking to extend by one year the repayment of a yuan bond worth 3.7 billion yuan due on Dec 28, with a bondholder meeting also scheduled for Dec 22.