China builder Vanke gets support from regulator, biggest holder
CHINA Vanke, the country’s second-largest developer by contracted sales, said that it will repay its debts on time after getting signals of support from a local regulator and its biggest shareholder on Monday (Nov 6).
Shenzhen’s State-owned Assets Supervision and Administration Commission (SASAC) has sufficient confidence in Vanke, and if needed, has enough cash and tools to support the builder in a legal and market-driven way if it “faces an extreme situation”, said senior official Ye Xinming.
The comments followed a deterioration in market sentiment last month. They were made during an online meeting attended on Monday by financial institutions, among others, according to people who listened in to the call.
Vanke’s dollar bonds surged as much as 12 US cents, putting some on pace for record gains. The builder also said in a statement after the call that it “will definitely repay offshore and onshore debt on time”, and that the “market does not need to worry about that at all”.
The expressions of support are a rare instance of such backing for distressed developers amid China’s property debt crisis, which has led to record defaults as it heads into its fourth year. When peers China Evergrande Group and Country Garden Holdings were grappling with liquidity crunches, for instance, local authorities did not voice such direct support.
Xin Jie, chairman of Shenzhen Metro Group, said the state-owned firm has never formulated plans to cut its stake, according to the sources, who asked not to be identified as the matter is private. The company owns more than a quarter of Vanke’s equity and is its largest shareholder. Wang Yongjian, Communist Party chief of the Shenzhen SASAC, also expressed support for Vanke at the meeting, the sources added.
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Shenzhen Metro is actively preparing to purchase Vanke’s publicly-traded bonds at the right time, according to Xin. The firm has prepared a “toolbox” to support Vanke based on the market situation, and could inject liquidity into Vanke to approaches including taking some of its urban redevelopment projects, he said. The total transaction value of such deals could be expected to exceed 10 billion yuan (S$1.9 billion).
“While Vanke is likely to tide through its short-term challenges, the home market risk still lingers,” said Liu Shui, an analyst at China Index Holdings. “Debt default risks at other property developers remain high.”
Vanke said last week that its finances were stable, and that recent price moves in some onshore and offshore notes were mainly a result of market sentiment. Its securities in a Bloomberg index of Asia investment-grade US dollar bonds lost 35 per cent last month, the most in a year and the gauge’s worst October performer.
Many of the invitees to the online meeting were institutional investors. The call was meant for Vanke to discuss operating conditions and recent bond-price fluctuations, Bloomberg News reported earlier on Monday, citing sources familiar with the matter.
Concerns about the ailing property sector spreading to the likes of Vanke – one of China’s few investment-grade developers – highlighted the scope of the worries. New home sales continue to slide while Country Garden, China’s largest builder last year, was recently deemed to be in default for the first time on a US dollar bond.
Vanke shares and notes jumped Monday morning after reports of the online gathering. The firm’s stock ultimately climbed 7.3 per cent in Hong Kong, the most in two months. BLOOMBERG
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