China Vanke bonds plunge after state-owned backer tightens loan rules
The move signals a shift in Shenzhen Metro’s approach to financial support, becoming more stringent after a leadership change in October
[BEIJING] China Vanke’s bonds slumped after its state-owned shareholder pressed it to secure earlier loans with collateral, tightening financing terms just as the developer reported a deeper third-quarter loss.
The company said that its largest shareholder, Shenzhen Metro Group, has requested collateral or pledges for 20.4 billion yuan (S$3.7 billion) worth of previously unsecured loans to ensure repayment, according to a statement late Sunday (Nov 2). If Vanke fails to comply, Shenzhen Metro has the right to demand immediate repayment of principal and interest on those loans.
As at Oct 30, Shenzhen Metro had extended 29.1 billion yuan in loans to Vanke, meaning roughly 70 per cent of the total was previously unsecured, according to data compiled by Bloomberg based on the company’s filings.
The move signals a shift in Shenzhen Metro’s approach to financial support, becoming more stringent after a leadership change in October. Since April, many of its loans to Vanke had not required asset pledging, a practice now being reversed.
“It is quite natural for Shenzhen Metro to ask for some collateral given the massive credit and liquidity lines that it had extended to Vanke this year,” said Zerlina Zeng, head of Asian strategy at Creditsights Singapore. “That said, with so much management reshuffle at Vanke, I don’t think we should take it for granted that financial support from Shenzhen Metro will always be forthcoming.”
Huang Liping, general manager of Shenzhen Metro, stepped in as chairman of Vanke last month following the abrupt resignation of his predecessor.
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“We think Shenzhen Metro will continue to support Vanke, but it will likely control the size of each loan more strictly,” said Jeff Zhang, a property analyst at Morningstar. “Meanwhile, Shenzhen Metro’s lending effort will become more standardised, such as requiring collateral or pledges.”
Vanke’s dollar bond due November 2029 is poised for its biggest fall on record, according to Bloomberg-compiled prices. The 3.5 per cent note fell 11.5 cents on the US dollar to 48.3 cents as at noon in Hong Kong. That would be the biggest daily decrease since the bonds were issued in November 2019.
Vanke said that the collateral may include operating real estate, inventory and equity in non-listed companies. The company added that the loan-to-value ratio for assets such as real estate, fixed assets, inventory, construction-in-progress, or stocks will range between 60 and 70 per cent, while the ratio for non-listed equity pledges will be 50 to 60 per cent.
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Shenzhen Metro extended loans to help Vanke repay principal and interest on publicly issued bonds. They carry a floating interest rate lower than China’s benchmark lending rate for short-term loans. They have an initial term of three years, but can later be extended if Shenzhen Metro agrees.
Vanke signed a framework agreement with Shenzhen Metro to receive loans of up to 22 billion yuan between the start of 2025 until the date of Vanke’s annual general meeting, which is expected no later than Jun 30, 2026, according to the statement.
The agreement also covers loans already disbursed. So far, Vanke has drawn 19.71 billion yuan in unsecured or unpledged loans, according to the statement.
Some analysts are not treating the loan ceiling as a hard limit. “There’s no need to pay too much attention to the total loan quota,” said Zhang. “It can always be negotiated further.” BLOOMBERG
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