China Vanke aims to avoid default as bondholder vote begins

[BEIJING] More than a dozen China Vanke bondholders dialled into an online meeting with company representatives on Wednesday (Dec 10) morning, people familiar with the matter said, as the developer made an eleventh-hour push to win support for a crucial debt extension plan.

During the roughly 30-minute meeting, holders of Vanke’s 2 billion yuan (S$367.2 million) onshore note due Dec 15 were presented with three proposals: a 12-month delay without any upfront cash payments or installments, a plan that was in line with what Vanke told bondholders earlier; and two other options with more generous terms requiring Vanke to pay interest on time and add credit enhancements. Holders can vote through the end of Friday Hong Kong time.

The debt extension is a critical part of Vanke’s strategy to relieve liquidity stress and mitigate default risk. The builder’s largest state shareholder, Shenzhen Metro Group, has provided a lifeline in the past, offering over 30 billion yuan in shareholder loans. But it has more recently tightened financing terms, shifting its approach to support, and sparked a drop in Vanke’s securities to deeply distressed levels. 

It’s unclear whether the two additional proposals put in front of creditors Wednesday were submitted by Vanke or creditors themselves. The company needs approval from holders of at least 90 per cent of the amount owed to pass the option. But whatever the outcome of the vote, it’s ultimately up to Vanke to decide whether to accept and implement a plan.

One bondholder on the call asked if Vanke would implement whichever proposal received bondholders’ backing, the people said. A Vanke representative responded by saying the company is looking into it, the people added.

Vanke didn’t immediately respond to a request for comment.

The coming months are especially perilous for the company, which has 13.4 billion yuan of publicly issued bonds maturing or facing early redemption pressure through mid-2026.

Vanke representatives reached out to some bondholders on Tuesday to say the company would also be willing to pay some interest on the note, but didn’t specify how much. They also asked for an extended grace period to work on a revised proposal, people familiar with the matter said earlier. 

If Vanke fails to repay the principal or interest of the bond due next Monday, it would have a grace period of five working days to make the payment before defaulting, according to the bond’s prospectus. 

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Vanke, which has total interest-bearing liabilities of about US$51 billion, is one of the few major Chinese developers that hasn’t defaulted amid the years long property crisis. Its bond extension plan jolted markets, rekindling real estate sector concerns and sending some of its notes sliding to record lows.

During a meeting on Sunday in Beijing, some bondholders voiced concerns about the extension plan to officials from the city of Shenzhen, which has provided financial aid to Vanke in the past. The officials asked for understanding of Vanke’s current financial stress and signalled that there isn’t much room for improvement in the current extension plan. 

One hedge fund investor warned that a default by Vanke could trigger systemic risks because the company is closely tied to the city. 

Vanke has also asked bondholders to delay payment on a separate local note due on Dec 28. It plans to arrange a meeting with those note holders on Dec 22 to discuss the proposal. It also decided not to exercise an issuer right that would allow it to redeem a 1.1 billion yuan bond ahead of maturity. BLOOMBERG