Vanke gets approval for more bond repayment deferrals as China is seen stepping in to avert immediate default

[HONG KONG/BEIJING] China Vanke received approval from bondholders to defer some repayments for two yuan-denominated bonds, giving the troubled state-backed property developer some breathing room in the first quarter as it works on other debt negotiations with help from Beijing.

Earlier this month, Vanke made sweetened proposals to defer repayments for three of its yuan bonds by offering to pay 40 per cent of the principal amount as well as additional collateral. Its proposals, which were unexpected, came after bondholders resoundingly rejected earlier plans.

Improved repayment proposals win bondholder approval

The improved proposals were requested by the government, three sources familiar with the matter told Reuters.

Vanke and the state asset regulator did not immediately respond to requests for comment.

One of China’s best-known real estate developers with a crushing US$50 billion in debt, Vanke has been at the centre of the country’s protracted property sector crisis, during which many of its rivals, big and small, have defaulted on their debt repayments.

A default by Vanke, which has many projects in top-tier cities, could hurt homebuyer confidence and ripple out into the broader economy, which is grappling with sluggish growth and tepid consumer spending. The bonds in question matured on Dec 15 and Dec 28 and are worth a total of 5.7 billion yuan (S$1 billion). Both received 100 per cent support from holders to defer 60 per cent of the repayment by a year, the filings showed.

Last week, a similar plan for Vanke’s 1.1 billion yuan puttable bond was approved, in the first big concession from bondholders.

Vanke’s next yuan bond deadline comes in April. It will have notes worth two billion yuan maturing in each month of the second quarter.

In November, the Shenzhen-based company shocked markets with its first known request for a bond repayment extension, even after major shareholder Shenzhen Metro, a company owned by the municipal government, last year lent Vanke about 22 billion yuan.

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Shenzhen Metro will provide Vanke with a further loan of up to 2.4 billion yuan to help the developer repay principal and interest on bonds, a separate stock exchange filing showed on Tuesday. The 36-month loan has an interest rate of 2.34 per cent, it showed.

Credit analysts said that Vanke will eventually need to restructure its debt, despite recent concessions.

“The agreement appears to mark another shift in the fickle regulatory stance towards developers, as the local government probably reversed course again in order to provide Vanke more financing to secure the deal,” said Gavekal Dragonomics in a report last week.

“Bond extensions will buy it time, but unless housing sales recover, Vanke will sooner or later appear on the brink of collapse again,” the firm said, adding that “such a recovery seems unlikely”.

Beijing has rolled out a number of measures aimed at supporting the property market, but new home prices extended declines in December, underscoring persistent strains in the sector. REUTERS