The Tamesis
Debt-laden state-owned construction giant Vanke may follow the strategy of other cash-strapped Chinese developers to avoid a court-ordered debt adjustment, credit analysts said.
Other troubled builders have sought multiple short-term extensions of bond repayments before eventually proposing debt restructurings.
Vanke The company surprised markets last month by seeking a one-year extension on its 2 billion yuan ($284 million) bonds due on Dec. 15, despite a 22 billion yuan loan injection this year from major shareholder Shenzhen Metro, a company owned by the Shenzhen municipal government.
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But that effort failed, with bondholders again vehemently rejecting Vanke’s sweet offer on Monday to defer repayments. But developers narrowly escaped default after they approved a plan to extend the grace period for bond repayments from five to 30 trading days.
Vanke’s proposal needs at least 90% support to pass. The grace period extension plan received 90.7% support, while the sweet proposal of paying overdue interest and adding credit enhancements to defer principal payments was rejected, with 78.3% opposed.
Analysts said the overwhelming rejection rate showed bondholders were frustrated with the lack of upfront cash and principal amortization, as they had seen in previous cases where developers repeatedly extended repayments at maturity.
They expect a similar vote on Vanke’s 3.7 billion yuan onshore notes due on Dec. 28 (next Sunday), with the developer also seeking to defer principal and interest payments for a year and extend the grace period for the notes to 30 trading days. Voting began on Monday and is expected to end on Thursday.
Zerlina Zeng, head of Asia credit strategy at CreditSights, said: “It is ultimately Vanke’s decision whether to implement the proposal. So the execution risk is high.”
“We believe Vanke may request an extension of the grace period multiple times until it enters a comprehensive debt restructuring.”
A Shanghai-based investor who sold off Vanke’s yuan bonds earlier this month also expected the company to default sooner or later. “Credit enhancement won’t help; just look at other developers like Sunac,” he said.
In a landmark deal in late 2024, after multiple bond extensions, Sunac It is proposed to carry out debt-for-equity swaps and significantly reduce domestic debt, aiming to reduce the debt scale by more than half. The company implemented the deal this year.
Local government test case
Since 2021, China’s heavily indebted developers have encountered a liquidity crisis, and in 2022 they began to restructure offshore bonds. But for politically sensitive onshore bonds, they have repeatedly extended maturities in hopes of a rebound in cash flow, which has so far failed to materialize.
A credit default by Vanke, once China’s largest developer by sales, could undermine homebuyer confidence in China’s first-tier cities, where the company is focused and where home prices have been stabilizing.
Vanke is now considered a test case local government Willing to help distressed businesses avoid falling into default.
If policymakers adopt a higher tolerance for delinquency rates, Vanke’s default and restructuring could also cause more trouble for local state-owned enterprises, many of which are under financial pressure, including local government financing vehicles (LGFVs), market participants said.
Shenzhen Metro agreed this year to provide loans if Vanke provided collateral. But these supports are not enough to cover Vanke’s 364.3 billion yuan in borrowings.
China International Capital Corporation (CICC) Sources told Reuters Vanke has been hired to review Vanke’s debt and debt restructuring was one of the options proposed by the investment bank in an internal report to the central government.
“Shenzhen Metro shows that support is waning and Vanke can no longer rely on government help; it needs to come up with other ways to solve the problem,” said Steven Leung, a director at UOB Kay Hian. He said a debt-cutting restructuring is ideal for cutting debt and easing repayment pressure.
- Reuters Additional editing by Jim Pollard
See also:
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