China Vanke is missing a deadline for a domestic bond for the first time
Bonds issued by China Vanke slumped on Tuesday after the indebted developer revealed a plan to extend repayment by one year for RMB 2 billion ($283 million) in onshore notes coming due in the middle of this month.
The state-backed builder seeks to postpone repayment of principal and interest for the medium-term note 22 Vanke MTN004 to 15 December 2026 with the coupon rate remaining unchanged at 3 percent during the extension period, according to a proposal released by Vanke on Monday and seen by Mingtiandi.
“Due to the impact of multiple factors, the company’s operating conditions remain exceptionally challenging,” said Vanke in the statement.
Six of Vanke’s onshore bonds dropped over 10 percent on Tuesday and one of them tumbled 32 percent, with analysts describing the proposal as weaker than expected. Vanke is said to have initially floated a phased repayment plan involving three installments spread over eight months.
Market Outlook Dims
The proposal represents the first time that the former top mainland developer has failed to meet a payment deadline on a domestic bond, and sent shockwaves through markets as investors questioned the government’s willingness to support the sector.
Huang Liping took over as chairman at China Vanke earlier this year
Vanke is asking for more time to repay its debts as China’s housing sector continues to weaken, with contracted sales by the country’s 25 largest developers dropping 42 percent year-on-year, according to CRIC data.
In a note on Tuesday, Stephen Cheung, a China property analyst with Morgan Stanley predicted that sluggish sales will likely continue into the first quarter of 2026.
Vanke notes plunged to record lows last week when the company first announced it was seeking to delay repayment on the RMB 2 billion local bond, which represents the first tranche of RMB 13.4 billion in debt maturing between through mid-2026.
The developer has relied on support from its controlling shareholder, Shenzhen Metro Group, to avoid default this year receiving RMB 30.796 billion in shareholder loans from the state-run metro operator. However, Shenzhen Metro has begun demanding more credit guarantees, with Vanke having pledged its 57.16 percent stake in its Onewo Hong Kong-listed property management unit to Shenzhen Metro as collateral, according to an exchange filing by Onewo last Friday.
Vanke’s Hong Kong-listed shares have fallen approximately 13 percent since 20 November while its onshore shares have slid about 16 percent.
Default Risks Heighten
Vanke’s onshore repayment delay announcement caused S&P Global Ratings last Friday to downgrade the developer’s credit rating to CCC-, which is just two categories away from default on the company’s scale.
“We view China Vanke’s financial commitments as unsustainable due to its weak liquidity,” said the credit rating agency. “Over the next six months, the company faces a sizable bond maturity wall while operating cash flow will be negative, and its accessible cash buffer will likely be thin, in our assessment.”
“The company’s debt obligations are currently vulnerable to risks of nonpayment or distressed restructuring, in our opinion,” it added.
With Vanke bondholders set to vote on the extension for the RMB 2 billion in notes by 12 December, the developer faces another RMB 3.7 billion in debt maturing on 28 December.
Credit intelligence provider Octus reported last week that Beijing gave preliminary guidance to the government of Shenzhen to consider a “market-oriented approach” for dealing with Vanke’s debt, which analysts from Octus have described as a euphemism for restructuring.
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