Vanke’s loan request rejected by at least two Chinese banks

[BEIJING] China Vanke was rejected by at least two big local banks as it tried to secure a short-term loan to quell the default fears that have fuelled a plunge in its bonds this week, according to people familiar with the matter.

The company held talks with banks about securing a so-called liquidity loan to help repay two bonds worth a combined 5.7 billion yuan (S$1 billion) due next month, said the people, asking not to be identified when discussing a private matter.

The talks were held ahead of a Wednesday evening announcement that Vanke would seek bondholder approval to push back the maturity of one of the bonds.

One of the banks declined before Vanke sought to extend its bond and the other rebuffed the attempt on Thursday (Nov 27), following the bond announcement, the people said. Two other banks were reluctant to proceed, said other people familiar with the matter.

The response underscores waning support for one of the last big survivors of China’s yearslong real estate crisis, which has fuelled around US$130 billion of defaults and dealt major damage to consumer confidence in the world’s second-largest economy. Vanke has become a crucial bellwether for Beijing’s willingness to support the battered real estate sector.

The loan talks were being led by Vanke’s largest shareholder, Shenzhen Metro Group, according to one of the people.

China Vanke and Shenzhen Metro did not respond to requests for comment.

Shenzhen Metro has extended about 30 billion yuan in shareholder loans to the cash-strapped builder, a crucial funding source that helped Vanke repay bonds this year. But that lifeline was thrown into doubt earlier this month, after Shenzhen Metro signalled tighter borrowing terms for Vanke.

“The latest proposed onshore maturity extension implies that the funding tap from the Shenzhen government has indeed closed, and that the Shenzhen government is no longer willing or able to provide a backstop for Vanke’s debt,” said Leonard Law, a senior credit analyst at Lucror Analytics

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Vanke has a two billion yuan note due on Dec 15 and a 3.7 billion yuan bond that matures on Dec 28, the first of a wave of maturities over the next 12 months.

The company said on Wednesday it would ask investors to accept delayed principal repayments on the Dec 15 note, without giving more details about the plan.

That ramped up pressure on bond and stock prices that had already plummeted this week. Vanke’s US$1 billion of US dollar bonds that mature in 2027 plunged to 23 cents on the US dollar on Thursday, bringing their losses to around 60 per cent this week, according to Bloomberg-compiled data.

Vanke’s Hong Kong-listed shares dropped as much as 8.5 per cent, hitting a record low before paring their losses. BLOOMBERG