China Vanke wins backing for bond delay plan, easing default risk

CHINA Vanke won enough creditor backing to extend payments on a yuan bond due Thursday (Apr 23) for a year, easing the embattled developer’s risk of an imminent default, at least for now.

Under the proposal, the cash-strapped company would repay 40 per cent of the principal of two billion yuan (S$3733 million) bond upfront and postpone the remainder by one year. All participating bondholders at the meeting voted in favour of the extension plan, which needed more than the 90 per cent support for passage, according to a public filing to the Shanghai Clearing House on Tuesday.

The approval gives Vanke, one of China’s last major developers to avoid debt failure so far, some breathing room as it strains under the weight of more than US$50 billion of interest-bearing liabilities amid an unprecedented real estate market slump. It would also allow Vanke to await guidance from regulators on the broader restructuring.

The company faces more than 11 billion yuan of bond maturities in the coming months, with five onshore notes, including the Apr 23 bond, and two put options that could be exercised before the end of July.

The extension passage comes after a key bondholder said last week that while it did not oppose the framework of the plan, it wanted better repayment protection for the extended portion of the bond.

Earlier this year, Vanke got bondholder approval to extend three of its other yuan bonds after offering similar terms to repay 40 per cent of the principal on those notes.

Company representatives held meetings last month with selected holders of the April bond, and told creditors that it was considering a larger plan that would include longer-term extensions of debt.

Vanke has been contending with a liquidity crunch for more than two years and has leaned heavily on shareholder loans from Shenzhen Metro Group. This support has waned since late last year, although a loan agreement in January showed Shenzhen Metro has not entirely abandoned the developer.

It remains unclear whether there would be any further support from Shenzhen Metro to help address the builder’s upcoming bond maturities in the months ahead.

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Onshore investors have held high hopes on the extension plans, notably the upfront cash payout. The bond last traded at about 57 yuan last week, amid thin liquidity, according to data compiled by Bloomberg.

All of the other six onshore notes that face maturity or put options that could be exercised in the coming months have traded near or more than 50 yuan. The onshore bond prices have stayed higher than its two US dollar notes, which were around 40 US cents as at Monday.

After posting its second full-year loss since its 1991 initial public offering, Vanke told investors that it is seeking a long-term debt resolution plan and pledged to “actively” find new sources of funding this year.

Any eventual default at the company could trigger cross-default clauses across the company’s other debt obligations. Late last year, some of Vanke’s offshore bondholders have been approached by Houlihan Lokey and PJT Partners, which are seeking to advise them. BLOOMBERG