China Vanke asks for 12 months to pay bond under extension plan
During the extension period, the 3% coupon would remain unchanged
[HONG KONG] China Vanke, the distressed builder that surprised markets last week when it proposed an unspecified delay in paying a local bond, has now asked holders to wait a year to be made whole, as it faces mounting liquidity pressure amid waning state support.
Shenzhen-based Vanke, once the nation’s largest builder by sales, told creditors on Monday (Dec 1) that it was seeking a one-year delay to pay the two billion yuan (S$360 million) note originally due on Dec 15 along with interest, people familiar with the matter said.
During the extension period, the 3 per cent coupon would remain unchanged, according to the people, who asked not to be identified discussing private matters.
The state-backed builder announced its request last week to delay repayment on the local bond – the first of a 13.4 billion yuan wall of repayments stretching through mid-2026. But it had not specified details of the proposal.
The move sent some of Vanke’s notes plunging to record lows and sparked broader concerns about Beijing’s commitment to support even its largest distressed developers.
Vanke did not immediately offer a comment out of office hours on Monday.
China’s multi-year property crisis has led to record defaults and liquidations or restructurings at real estate firms, including giants such as Country Garden Holdings and China Evergrande Group.
Vanke, one of the last major developers to have avoided defaulting and long regarded as a key gauge of government support for China’s property sector, has been grappling with severe liquidity pressures since late last year.
Over 30 billion yuan in shareholder loans from its largest state-owned backer, Shenzhen Metro Group provided a critical lifeline, helping the cash-strapped builder avoid defaults this year.
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But the backing came under scrutiny in recent months after Shenzhen Metro signalled plans to tighten borrowing terms.
Vanke pledged its entire 57.16 per cent stake in a Hong Kong-listed property management unit to Shenzhen Metro, handing over to the state shareholder one of its best assets as default concerns mount, according to an exchange filing late on Friday.
The pledge is part of a framework that allows Shenzhen Metro to demand collateral or pledges from Vanke in return for loan support.
The market has been wary of Vanke’s long-term credit outlook, but few expected the situation to deteriorate so quickly. The bond for which Vanke is seeking an extension was indicated near par before the plan was announced, but its price plunged to 27 yuan on Friday.
S&P Global Ratings warned on Friday that Vanke’s financial commitments are “unsustainable” given its weak liquidity and the risk of a distressed restructuring within the next six months has increased.
Vanke’s US dollar notes due in 2027 held steady on Monday, after plunging more than 60 per cent last week, according to data compiled by Bloomberg.
Vanke was also rejected by at least two big local banks as it tried to secure a short-term loan to quell its liquidity challenges, Bloomberg News reported last week.
The company held talks with banks about securing a so-called liquidity loan to help repay its yuan bonds due in December including the one under the extension plan. Two other banks were reluctant to proceed, said other people familiar with the matter.
China’s property malaise continues to bring more losses for investors in the sector. Recovery rates for creditors in China’s distressed developer cases are starting to come more into view and the picture is grim.
While each case is different and Vanke has yet to enter any restructuring, creditors are surely gameplanning potential scenarios.
Those would reference peers like Country Garden and Evergrande, where some estimates put likely eventual recoveries in the range of 10 per cent to 24 per cent and just cents on the US dollar, respectively. BLOOMBERG
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