China Vanke seeks to extend some bank loans by up to 10 years
China’s financial regulators have pledged to step up support for real estate financing, though banks have been constrained by worsening profitability and concerns over a resurgence in bad debt
[BEIJING] China Vanke is seeking to extend some of its domestic bank loans by as much as 10 years, according to sources familiar with the matter, a move that could help the state-backed developer reduce liquidity risks.
The Shenzhen-based builder, one of China’s largest by contracted sales, has made a preliminary proposal to several major Chinese banks in recent weeks for the extension, according to the sources, who asked not to be identified as the matter is private.
While some banks are still evaluating the plan, others are reluctant to agree until they get further guidance from regulators, the sources added.
Such long-term extensions could offer the company some breathing room on its repayment obligations. Vanke, which has been pummelled by China’s prolonged property slump, recently said that its first-half loss may widen to as much as US$1.67 billion, underscoring its financial challenges.
China’s financial regulators have pledged to step up support for real estate financing, though banks have been constrained by worsening profitability and concerns over a resurgence in bad debt. Commercial banks’ net interest margin dropped to a record low of 1.43 per cent at end of March. The measure has been below the 1.8 per cent threshold that helps maintain reasonable profitability for more than two years.
Total non-performing loans in the banking system reached a record 3.4 trillion yuan (S$609 billion) as at the end of March. While extending or restructuring some of these troubled loans may help contain headline bad debt figures and temporarily cushion the impact on bank profits, it risks obscuring the extent of asset quality deterioration, potentially leading to more severe consequences in the long run.
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Vanke had about 361 billion yuan of interest-bearing borrowings as at last year, 43.8 per cent of which will mature within 12 months, according to its latest annual report. The majority of those were bank loans, which accounted for 257.9 billion yuan of Vanke’s total liabilities.
The company did not immediately respond to a request for comment.
Chinese officials have taken a number of steps to stabilise Vanke’s operations and finances since the start of this year. Some of the firm’s US dollar bonds fell about 40 per cent to deeply distressed levels in January before an official from Shenzhen Metro Group, its largest shareholder, took over as chair and local governments vowed to “pro-actively support” Vanke’s operations.
The state-owned shareholder has since offered multiple loans totalling more than 15 billion yuan so far this year, according to data compiled by Bloomberg. Early this month, Vanke said it would apply for another loan of as much as 6.25 billion yuan from Shenzhen Metro.
Excluding shareholders’ loans, Vanke said in a filing this week that it had secured 24.9 billion yuan of new financing and refinancing during the first half, and had successfully completed repayment of 16.5 billion yuan in public debt. No offshore public debt is due before 2027, it added. BLOOMBERG
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