China mulls 50 billion yuan funding to help Vanke repay debt
Under the plan, regulators would allocate 20 billion yuan of special local government bond quota for the purchase of unsold properties and vacant land from Vanke
CHINESE authorities are working on a proposal to help China Vanke plug a funding gap of about 50 billion yuan (S$9.3 billion) this year, according to people familiar with the matter, highlighting the government support for the distressed developer.
Under the plan, regulators would allocate 20 billion yuan of special local government bond quota for the purchase of unsold properties and vacant land from Vanke, said the people, asking not to be identified discussing private information. The money would enable the Shenzhen-based developer to pay public and private debt due this year, the people added.
Vanke and its affiliates would also be allowed to tap other financing sources including new bond sales and bank loans for debt payments, the people said, adding that the details of the plan could still change. It could not be determined if Vanke has started any work on specific bond issuance.
The proposed financial backing is a further sign that Beijing is drawing a line in the sand for Vanke so that the state-backed developer does not suffer the same fate as China Evergrande Group and other private firms that defaulted on their debt in recent years. Vanke is facing a funding gap this year as the cash-strapped developer has US$4.9 billion of bonds maturing or facing redemptions at a time of slumping home sales and limited access to fresh liquidity.
Vanke will “go all out to meet its public debt obligations this year” and continue to raise funds through home sales, asset disposals, exiting non-core businesses and seeking fresh financing, according to a statement in response to Bloomberg’s enquiry. The developer said it has 36 billion yuan of public debt due this year and has repaid 3 billion yuan in January.
Shenzhen government and China’s housing ministry did not immediately respond to requests for comment.
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Other than publicly issued debt, Vanke also had 91 billion yuan of short-term bank loans and borrowings from financial institutions outstanding by the end of September, according to its financial report.
The local government of Shenzhen last month stepped in to take management control of Vanke, which warned of a record US$6.2 billion loss for 2024, and vowed to “proactively support” its operations. Vanke received a 2.8 billion yuan loan this week from its largest state-owned shareholder, Shenzhen Metro Group.
Vanke’s bonds have rebounded from deeply distressed levels in response to the support measures, with investors betting that the company will be able to repay debt, at least in the short term.
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Shares of Vanke surged as much as 19 per cent in Hong Kong following the news. It also lifted peers, with a gauge of China property shares up 8.2 per cent. Vanke’s US dollar bonds gained across the curve, according to two traders. Its dollar bond due May rose one points to bid at 98 cents on the dollar, while its bond due 2027 added five points to bid at 74.5.
“It seems we can rest assured that there will be no more defaults, at least not by any SOE developers from here,” said Zhu Zhenkun, a fund manager at Hainan Shire Asset Management. He added that the size of the support and government’s resolve exceeded his expectation.
Still, with total liabilities amounting to about 982 billion yuan, challenges remain. Moody’s Ratings downgraded Vanke on Tuesday (Feb 11) to Caa1, seven notches below investment grade, citing its financial results and weak liquidity.
As China’s housing crisis extends into its fourth year and dozens of private companies have defaulted, authorities are trying to ring-fence state-backed developers like Vanke. Vanke operates across the country and has deep roots as just the second company to list on the Shenzhen Stock Exchange in 1991.
A default by the bellweather firm would batter home sales further and erode confidence in other state-controlled builders such as Poly Developments and Holdings Group and China Overseas Land & Investment, which are now the country’s biggest developers by sales. Vanke, which employs about 130,000 people, ranked fifth by sales last year.
Authorities are stepping in to overhaul Vanke. Xin Jie, chairman of Shenzhen Metro, will replace chairman Yu Liang, who resigned but will remain a director, Vanke said in a filing last month. chief executive officer Zhu Jiusheng also quit, citing “health reasons.”
Housing continues to be a drag on China’s economy, which also faces headwinds from creeping deflation and higher tariffs from US President Donald Trump.
Residential sales resumed falling in January, suggesting the property sector has some way to go before it can show a sustained recovery. The value of new-home sales from the 100 biggest real estate companies dropped 3.2 per cent from a year earlier to 227.6 billion yuan. Sales were also flat in December, according to data from China Real Estate Information. BLOOMBERG
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