China Vanke’s record loss leaves developer at mercy of state backer

CHINA Vanke’s US$12 billion record loss underscores how its ability to avoid default depends on how far its state shareholder is willing to support the stricken property developer.

The homebuilder lost about 82 billion yuan (S$15 billion) last year, it said in a preliminary earnings statement late Friday (Jan 30). That is the equivalent of about 40 per cent of its total equity attributable to shareholders at the end of the previous year, a sign of how quickly its losses are eating into capital buffers.

The loss highlights the depth of Vanke’s financial troubles and its dependence on support from Shenzhen Metro Group. After being profitable in every year since its 1991 listing, Vanke’s losses in the past two fiscal years combined have burned more than half of its equity at its 2023 peak.

“Vanke will likely continue to record losses until 2028 and become insolvent in the meantime, so it will keep relying on external funding support,” said Jeff Zhang, an analyst at Morningstar. “Currently, the outlook on shareholder support is positive, but that still carries significant uncertainties going forward.”

Last year’s loss would also exceed its HK$61.6 billion (S$10 billion) market value as at last Friday by almost 50 per cent. The figures reported by Vanke are based on preliminary data and have not been audited externally, the company said in an exchange filing last Friday.

Shares of Vanke slid as much as 7.4 per cent in Hong Kong trading on Monday morning, the biggest intraday decline since November.

Once China’s largest developer, Vanke is now at the epicentre of the nation’s years-long property crisis. The company has been wrestling with a liquidity crunch for more than two years, during which it leaned heavily on shareholder loans from Shenzhen Metro to service debt. That support came into doubt late last year, when the subway operator sought to tighten borrowing terms, pushing the developer to the brink of default.

Last week, Vanke won creditors’ approval to push back full repayment on three local bonds by one year, after offering to make large upfront cash payments on the three notes. Vanke also said Shenzhen Metro will provide another loan to help it repay principal and interest on bonds issued in the public market.

The statement did not mention specific securities, but the timing suggests most of the funding for the partial payments could be coming from the state firm.

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Vanke’s sweetened offers of 40 per cent upfront cash payments on the three local notes came as a surprise to investors, as the company appeared to have been struggling even with interest payments just a few weeks ago.

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.

“The huge losses have laid the foundation for a possible holistic restructuring in the future,” said Yao Yu, founder of Shenzhen-based credit rating startup RatingDog.

The company is preparing a comprehensive debt restructuring after authorities asked it to submit a plan as soon as possible, sources familiar with the matter said in early January. BLOOMBERG