China Vanke Sees Rebound on Statement, Rush for Funds

Chinese banks and officials have been scrambling to ensure that Vanke, the country’s second largest developer by sales, does not go bust after the group suffered a downgrade by Moody’s.

Shares and bonds of China Vanke jumped on Tuesday after the developer said the impact of the ratings downgrade on its access to funding was “controllable”. However, the group’s shares were down 3.1% after the close of trading on Wednesday.

Moody’s on Monday downgraded Vanke to “junk” from investment grade ratings, by assigning ‘Ba1’ corporate family rating (CFR), and said all of Vanke’s ratings would be on review for downgrade.

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In a statement on Tuesday, Vanke said the “company’s current operation and refinancing are normal and financing channels are stable”. It also said the impact of a ratings downgrade on its financing activities was “controllable”.

Hong Kong-listed shares of China Vanke closed up 10.3%, while its Shenzhen-listed shares rose 5.7%. the property indexes in each market rose 8% and 5%, respectively.

Its 2025 bonds were bid at 71.252 cents on the dollar as of 1000 GMT, compared to 67.638 cents in Asia morning trading, according to data by Duration Finance. Its 2029 bonds were bid at 44.406 cents, up from 43.045 cents.

The Moody’s action came after a Reuters report on Monday that China had asked banks to enhance financing support for state-backed Vanke and called on creditors to consider allowing private debt maturities to be extended.

Chinese authorities are anxious to stabilise the real estate sector, which is locked in a debt crisis that has seen many of its biggest property firms default, and officials boosting funding for developers of certain projects.

But Housing Minister Ni Hong warned on Saturday that developers who “harm the interests of the masses” will be punished by not getting a major bailout.

Vanke is one of the few remaining Chinese developers with investment-grade ratings. If another major rating agency such as S&P or Fitch follows suit, Vanke’s dollar bonds would face the prospect of being dumped out of some of the world’s most important investment indexes.

“The rating review only impacts its offshore financing activities which has been shut for a while now,” said KT Capital senior researcher Fern Wang. “The market has relatively muted responses to the potential action as the Vanke bonds have been traded as a junk bond for a while now.”

State banks, insurers rally to support flagship developer

Vanke’s major creditor banks are considering a plan to swap bond holdings worth tens of billions of yuan in principal into secured debt, according to one report on Tuesday. Such a move that would help the developer avoid a public default while giving banks collateral to protect against any potential losses.

The firm is also aiming to raise HK$4.5 billion ($575 million) via a syndicated loan in Hong Kong for its offshore prepayments, a source with direct knowledge of the matter told Reuters.

Vanke was the first property company on the mainland to list on the stock exchange – in 1991 – and is regarded as a flagship company in the property sector. Its sales declined by about 10% in 2023, then slumped even further in January.

State media reported on Tuesday that 12 major banks were in talks to provide a syndicated loan for Vanke worth of up to 80 billion yuan ($11.2 billion) so it can meet repayment deadlines, while several insurers are said to be helping with negotiations to avert a default, according to CNN.

But some sources have claimed that the loan is still uncertain, it said, citing a report by Cailianshe.

Vanke has so far declined to comment on the report and its offshore borrowing.

Any repayment troubles at Vanke could dampen market confidence and worsen China’s wider property debt crisis that has enveloped peers Country Garden and one-time market leader China Evergrande, analysts have said.

“The market is still concerned about Vanke’s long-term debts,” Li Gen, chairman of Beijing G Capital Private Fund Management Center LLP, which specialises in credit investment, said.

“The real pressure will kick in in the second half of this year. If without timely support from its shareholders, while home sales continue to be weak, Vanke will face draining liquidity.”

Vanke has around 14 billion yuan ($1.95 billion) worth of offshore bonds and around 20 billion yuan of onshore bonds coming due or becoming putable through to June 2025, according to the rating agency.

Moody’s said it expects Vanke’s financial flexibility and liquidity buffer to weaken over the next 12-18 months because of declining contracted sales.

“The company’s continuing exposure to funding volatility, on top of is high refinancing needs, does not support an investment-grade rating,” Moody’s said.

The firm’s sales in the first two months of this year dropped 40% from a year ago.

Vanke’s share price and bonds had faced major selling pressure last week after reports it was facing financial stress and had sought debt maturity extensions from some investors.

The company said in a filing on Friday it had deposited funds required to repay $630 million US dollar notes that were due on Monday.

Vanke is government-backed with around 30% owned by Shenzhen Metro, a company held by Shenzhen’s state asset regulator.