Chinese developer Vanke cut to junk territory by Moody’s

Moody’s Ratings stripped state-backed developer China Vanke of investment-grade credit rating and warned of potential further cuts, predicting credit metrics and liquidity will weaken because of falling home sales and funding uncertainties.

The rating firm withdrew Vanke’s Baa3 issuer rating and assigned it company a Ba1 corporate family rating, it said in a statement Monday (Mar 11) night. All of Vanke’s ratings are on review for downgrade.

“The rating actions reflect Moody’s expectation that China Vanke’s credit metrics, financial flexibility and liquidity buffer will weaken over the next 12-18 months because of its declining contracted sales and the rising uncertainties over its access to funding amid the prolonged property market downturn in China,” said Kaven Tsang, a Moody’s senior vice president.

The move is likely to further shake confidence in China’s property sector, as Vanke has been seen as a bellwether for Beijing’s support for major developers with strong ties to the state. 

The firm, those, still carries non-junk grades at S&P Global Ratings and Fitch Ratings. If either cuts Vanke to junk levels, the builder will become what is known as a “fallen angel” and could prompt investment-grade bond investors to sell their holdings.

Recent debt-repayment concerns had pushed the developer’s shares and bonds to record lows.

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Vanke also is facing pressure from several major insurers that have become concerned over potential liquidity stress at the company and are seeking to protect their privately issued debt.

At least three Beijing-based insurers sent executives to Vanke’s headquarters in Shenzhen recently to discuss debt repayment plans under the local government’s coordination, according to people familiar with the matter. BLOOMBERG