Vanke sweetens bond extension proposal to avert debt default

[BEIJING] China Vanke has offered to pay overdue interest on a two billion yuan (S$360 million) bond before the expiration of a grace period next week, as the developer scrambles to get creditor approval to delay a principal payment and avoid default.

China’s property sector once accounted for a quarter of the country’s gross domestic product. But it has been hit by slowing demand, with homebuyer sentiment hurt by developer defaults, which has weighed on growth in the world’s second-largest economy.

In the latest proposal to delay the repayment of the bond that matured on Monday, the state-backed developer said that it would pay the overdue 60 million yuan in interest by Dec 22, according to a Tuesday filing with the National Association of Financial Market Institutional Investors.

The repayment has a grace period of five business days.

Vanke is also seeking to extend the grace period for the bond repayment to 30 trading days from five at present.

The developer’s first attempt to extend repayment was rejected by bondholders and it is holding a second meeting with bondholders that will start on Thursday and culminate with voting on Dec 22 at 0200 GMT.

The interest-payment proposal was also on the agenda at the first bondholder meeting, but it was tabled by investors and not the company, according to sources with knowledge of the matter.

This time, the developer put forward the interest-payment proposal, which some market participants viewed as a sweetening of the terms.

“This proposal marks an improvement on Vanke’s initial plan to extend both principal and interest by one year,” said Yao Yu, founder of credit research firm RatingDog, adding that issuer-led proposals imposed stronger obligations than those put forward by holders.

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The package also seeks a waiver of procedural time limits to speed up the timetable for convening the meeting before the current five-business-day grace period expires; failure to pass the waiver would trigger a default.

Each of the three proposals requires at least 90 per cent approval.

Vanke was set to meet in Shenzhen with some insurance firms and commercial banks on Wednesday afternoon, Bloomberg News reported, citing people familiar with the matter. The report said that it was unclear what the meeting was about.

Vanke did not immediately respond to a request for comment.

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.

It is also proposing to extend repayment for its 3.7 billion yuan note due December 28 by a year, sources have said.

Vanke’s Shenzhen-listed shares closed down 0.2 per cent, while its Hong Kong-traded stock edged up 0.8 per cent. The developer’s onshore bonds were largely trading flat. REUTERS