Vanke skips interest on onshore private debt, seeks lower rates: sources
The move underscores Vanke’s vulnerable financial position, as it grapples with a wall of onshore debt maturities
[BEIJING] China Vanke is in talks with major domestic creditors to cut borrowing costs on private debt worth tens of billions of yuan, as the embattled developer seeks to ease liquidity stress, according to people familiar with the matter.
Vanke recently decided to skip interest payments on some private debt as part of the negotiations, said the people, requesting not to be named because the information is private. The Shenzhen-based firm told some creditors, including insurance firms, that it wants to cut interest rates on some debt to about 3 per cent or lower, from at least 4.3 per cent currently, the people added.
Creditors are still evaluating the plan, they added. Vanke and its largest shareholder Shenzhen Metro Group did not immediately respond to a request for comment.
The move underscores Vanke’s vulnerable financial position, as it grapples with a wall of onshore debt maturities, despite receiving liquidity support from its largest state shareholder since January this year.
The company’s financial health also hangs in the balance for a wide array of institutions, including banks that have remained reluctant to extend the firm’s onshore loans by a decade, the people said.
Vanke’s US dollar bond due November 2029 is poised for its biggest fall since April, according to Bloomberg-compiled prices. The 3.5 per cent note fell about three cents on the US dollar to 69 cents in Hong Kong on Tuesday (Sep 23).
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State-backed Vanke was once China’s largest developer but has become the latest flashpoint in the nation’s prolonged property crisis, underscoring the severity of the sector’s challenges.
Vanke had about 364 billion yuan (S$65.7 billion) of interest-bearing borrowings as of June, 43 per cent of which will mature within 12 months, according to its latest disclosure. Bank loans accounted for 72.5 per cent of total borrowings.
The firm’s biggest maturity wall will be next year, when about 24 billion yuan of onshore public bonds and loans come due.
China’s financial regulators have pledged to step up support for real estate financing to contain the property crisis. However, banks remain constrained by deteriorating profitability and mounting concerns over a resurgence in bad loans.
Commercial lenders’ net interest margin – a key measure of lending profitability – fell to a record low of 1.42 per cent at the end of June. For more than two years, the measure has been below the 1.8 per cent threshold that helps maintain reasonable profitability.
In January, an official from Shenzhen Metro took over as chairman for Vanke. Meanwhile local governments vowed to “pro-actively support” Vanke’s operations.
The state-owned shareholder has since offered multiple loans totalling about 23.9 billion yuan, according to Vanke’s interim report. The loans are all earmarked to help Vanke repay the principal and interest on publicly issued bonds. Early this month, Vanke said it would secure another loan of as much as 2.06 billion yuan from Shenzhen Metro.
Still, the developer reported a loss of 11.95 billion yuan in the first half, widening from a 9.85 billion yuan loss a year earlier. Fitch Ratings also downgraded its long-term issuer score to CCC- in August, reflecting further weakening in China Vanke’s liquidity.
Vanke “is likely to face ongoing earnings decline and liquidity stress”, said Bloomberg Intelligence analysts Kristy Hung and Monica Si in a Sep 5 note.
China’s home sales extended their slump in August even as the country’s two biggest cities rolled out additional stimulus measures. The value of new home sales from the 100 largest property companies stood at 207 billion yuan, a 17.6 per cent drop from a year earlier. Existing home prices also declined at an accelerated pace in August. BLOOMBERG
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