China Vanke assures it can repay $630 million dollar bond amid liquidity worries, ET RealEstate

March 5, 2024

<p>Representative Image</p>
Representative Image

HONG KONG/BEIJING: Struggling property developer China Vanke said on Tuesday it has funding in place to repay $630 million in dollar notes due on March 11, amid more selling pressure on its bonds as concern mounts over its liquidity.

China‘s No.2 property developer by sales said in a statement to Reuters that the repayment process for the bond was “orderly”. Shares of the company and prices of its 2029 dollar bonds recovered slightly after the statement.

Investors have dumped shares and bonds of state-backed Vanke over the past week amid reports that the developer, previously seen by the market as financially sound, was seeking debt maturity extensions with some insurers.

A source with knowledge of the matter told Reuters on Tuesday that insurers including Taikang Insurance, state-owned PICC Property and Casualty Co and New China Life Insurance have received requests from Vanke for debt extensions. News about New China has been previously reported by other media.

Vanke and the three insurers did not immediately respond to requests for comment.

The concerns about Vanke’s financial health come after a string of defaults by Chinese developers since the country’s property sector slipped into a debt crisis in mid-2021, including giants China Evergrande Group and Country Garden.

Any repayment troubles at Vanke, one of the few remaining Chinese developers with investment grade credit ratings, could further dampen market confidence, analysts said.

Moody’s downgraded some of Vanke’s bonds to “junk” in November, and if another major rating agency such as S&P or Fitch follows suit, those bonds face the prospect of being dumped out of some of the world’s most important investment indexes.

China has struggled to contain the deepening property crisis despite measures to boost home sales and add liquidity for debt-laden developers. A glut of unfinished homes is scaring away potential buyers, weighing heavily on a sector that had traditionally been a major economic growth driver.

On Tuesday, policymakers reiterated their commitment to stabilise the property sector with targeted measures while providing financing to “justified” projects.

Premier Li Qiang said in his annual report to parliament that China would also quicken the development of a new model for the property sector, focusing on building more affordable housing and meeting various demand for homes.

China Vanke’s 2029 dollar bonds recovered slightly and were bid at 40.358 cents on the dollar after its statement, from earlier bids at 39.045 cents. But they were still down 5.4 cents from Monday, data from Duration Finance showed.

Bids for its 2027 bonds dropped 7 cents to 46.533 cents.

Some of the firm’s onshore bonds also eased, with a bond due March 2025 dropping more than 7%.

Vanke’s Shenzhen-listed shares recouped early losses to close up 0.5%. Its Hong Kong-listed shares ended down 2.5% in their seventh straight session of declines, but recovered slightly from a 4.1% drop in morning trade to a record low of HK$5.37.

Club Loan

Vanke is seeking to raise a club loan in Hong Kong, with Bank of China (Hong Kong), the lead bank of the loan, having already obtained internal approval to commit HK$1.5 billion ($191.73 million), Debtwire reported on Monday.

Debtwire reported in January that Vanke was aiming to raise $631 million in a club loan to cover two remaining dollar bonds due in May and June this year.

The deal intelligence provider also said in its Monday report that Vanke had received verbal consent from some insurers to defer their put options exercisable in the coming months on some of the so-called insurance debt investment plans, on condition the developer would make interest payments on time on these instruments.

Financial media outlet Caixin reported on Tuesday that two of those plans, which involved 3 billion yuan from New Life and 2 billion yuan from PICC and were due in December and January respectively, had been extended for three months with the assistance of regulators.

Now, with the extensions expired, Vanke was in talks with both firms again, Caixin said. It added many insurers have issued over 40 billion yuan of these insurance plans in total to Vanke since 2019, including 14 billion yuan from New China and 9 billion yuan from Taikang.

Vanke declined to comment on the reports by Debtwire and Caixin.

Vanke told a meeting with financial institutions earlier this year that it planned to use its existing offshore funds and club loans to repay the March bond maturity, a person familiar with the talks said.

It added at the time that its existing offshore fund was sufficient to cover the repayment even without new loans from banks, the person added.

China Vanke stock, bonds resume their sell-off on liquidity concern

China Vanke’s Hong Kong-listed shares fell 7.1%, having finished last week down 8.1%. The developer’s Shenzhen-listed shares lost 4.7%, exacerbating last week’s 3% decline.

  • Published On Mar 5, 2024 at 07:00 PM IST

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