China Vanke seeks a one-year extension on second bond of 3.7 billion yuan

[SHENZHEN] China Vanke offered creditors details of its plan to delay payment on a second bond maturing in December, as it races to avert a default on any of its nearly US$2 billion of local debt that is due in the coming months. 

Shenzhen-based Vanke was once the nation’s largest builder by sales.

It has now told some bondholders that it is seeking a 12-month delay on both principal and interest payments on its 3.7 billion yuan (S$677.5 million) note due Dec 28, said people familiar with the matter.

The 3 per cent coupon rate will remain unchanged during the extension period, the people added. Vanke announced the proposal in a public filing last week, but did not include details, and is planning a meeting with bondholders on Dec 22 to discuss it. The latest extension request comes as the firm scrambles to secure enough creditor support for a plan to delay payment on a two billion yuan bond, due on Monday (Dec 15).

Vanke, one of the few major Chinese developers that has not defaulted, relied on financial lifelines from its largest state shareholder, Shenzhen Metro Group, in the past.

But recently, the company shifted its stance and tightened financing terms, adding to the developer’s stress.

Securing the extensions is crucial for Vanke’s efforts to shore up its liquidity and mitigate default risk.

Its plan to extend the two billion yuan bond reignited worries about China’s beleaguered property sector, and sent some of the company’s bonds plunging to record lows. The company has total interest-bearing liabilities of about US$51 billion. The latest extension plan also raises questions about the company’s strategy for dealing with its looming maturity wall. 

“Vanke is extending its bonds, one by one, simply to buy time for an eventual holistic restructuring plan,” said Li Huan, co-founder of Forest Capital Hong Kong. Li noted that the extensions are a waste of time because they do not address the underlying issues, and risk adding further disruption to the financial markets. “In the end, a full-scale restructuring is inevitable,” he added.

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Vanke did not immediately respond to a request for comment. The company said last week that it decided not to exercise an issuer right that would allow it to redeem a 1.1 billion yuan bond ahead of maturity, in another sign of mounting liquidity problems.

The coming months are likely to be challenging for Vanke, with 13.4 billion yuan of publicly issued bonds maturing or facing early redemption pressure until mid-2026.  The yuan bond maturing on Dec 28 traded at 20 yuan on Thursday, down from near-par level in early November, data compiled by Bloomberg revealed. BLOOMBERG