China Vanke’s bondholders approve plan to extend grace period, reject repayment extension

[HONG KONG] Embattled property developer China Vanke narrowly dodged a default on Monday (Dec 22) after onshore bondholders approved a plan to extend the grace period of a two billion yuan (S$367 million) bond repayment, a company filing showed, temporarily relieving investor worries of a worsening debt crisis in the sector.

But bondholders again rejected the state-backed developer’s proposal to delay repayment of the bond by one year, according to a filing with the National Association of Financial Market Institutional Investors on Monday, despite it being sweetened with an offer to pay overdue interest by the end of the current five-day grace period on Dec 22.

The bond in question matured on Dec 15, and bondholders rejected an earlier proposal by Vanke to delay repayments.

The extended grace period to 30 trading days would mean Vanke now has until the end of Jan 27 to renegotiate and reach an agreement with bondholders on terms to delay the repayment. Otherwise, it would face a default and would likely need to restructure all of its debt.

The cash-strapped developer surprised the market last month by seeking a public bond extension after billions in loan support from its state shareholder Shenzhen Metro this year.

Property sector reeling from debt crisis

Ever since China Evergrande triggered a debt crisis in the country’s massive property sector in 2021, many developers have failed to make bond repayments without roiling markets. However, analysts said Vanke’s focus on the country’s top-tier cities could knock homebuyer confidence in those locations, where house prices have been stabilising, and add to the woes of the wider property sector, which once made up 25 per cent of China’s economy.

“Vanke is buying time with extending grace periods,” said Jackson Chan, global fixed income senior manager at FSMOne Hong Kong. “The original five days is not enough for negotiating terms.”

Chan expected an agreement to delay repayment could be reached eventually so that Vanke would not default on its onshore bonds and affect its onshore operation.

Vanke’s proposals required at least a 90 per cent approval rate to pass. The grace period extension plan achieved 90.7 per cent, while the sweetened proposal to postpone principal payments by a year was rejected with 78.3 per cent opposing it.

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In a separate vote, Vanke is also seeking to delay the principal and interest payments by a year on a 3.7-billion-yuan onshore note due Dec 28, and extend the note’s grace period to 30 trading days from five days. Voting started on Monday and is due to conclude on Thursday at 0700 GMT.

“A repayment extension approval would be positive from the market perspective because it would provide a template for Vanke’s other yuan bonds to follow suit,” said Steven Leung, director of UOB Kay Hian.

“If bondholders reject the proposals, Vanke may need to launch a restructuring with haircuts, which is actually more ideal for Vanke because it will be able to cut the size of its debt and ease some repayment pressure.”

Shenzhen-listed shares of Vanke closed 0.6 per cent higher on Monday, while its Hong Kong-listed shares reversed earlier gains to drop 1.9 per cent. Its yuan bond prices were little changed.

Ratings agency Fitch last week downgraded Vanke’s credit rating by two notches to “C”, indicating a failure to meet debt obligations, and said it would downgrade the Shenzhen-based developer again to “restricted default” if it fails to pay its debt after a grace period. REUTERS