China Vanke Gets $339M Loan, Wins Extension on Domestic Bonds to Avoid Default

China Vanke has secured fresh credit support from its largest shareholder, Shenzhen Metro, with the embattled developer also winning approval from bondholders to partially defer repayment on two yuan-denominated bonds, in signs that the company may be winning fresh support in its battle to avoid default.

Owned by the southern city’s municipal government, Shenzhen Metro will provide Vanke with a new loan of up to RMB 2.36 billion (339 million) to help repay principal and interest on bonds, Vanke said in an exchange filing on Tuesday. The 36-month loan has an interest rate of 2.34 percent.

The loan support came just in time for Vanke to make has promised to immediately make about the same amount of repayments on two overdue notes as sweetened terms in its latest extension proposals, announced earlier this month.

Those extension proposals for the 22 Vanke MTN004 and 22 Vanke MTN005 medium-term notes, which together have a face value of RMB 5.7 billion, have now been approved, Vanke said in separate filings on Tuesday.

As part of the agreement, the developer is required to immediately repay 40 percent of the principal and interest due on these notes, amounting to about RMB 2.46 billion.

Market Boost

Vanke’s proposals to delay by one year repayment of 60 percent of the amount due on both 22 Vanke MTN004, a RMB 2 billion set of notes which matured on 15 December, and 22 Vanke MTN005, a RMB 3.7 billion set which matured on the 28th of last month, received 100 percent support from bondholders.

As part of the deal, Vanke will secure the notes with receivables from project companies in cities including Beijing, Shenzhen and Xi’an.

Vanke’s Shenzhen-listed shares rose 2.3 percent on Wednesday, while its Hong Kong-listed stock rose 3.6 percent. Some of its onshore bonds rose nearly 10 percent.

Bondholders approved these latest extension proposals after having rejected several earlier plans with less favorable terms. The improved proposals had been requested by the government Reuters reported, citing sources familiar with the negotiations, after Vanke’s announcement in late November that it would seek to delay payment on the domestic bonds had spooked financial markets, Mainland news reports this week indicated that former China Vanke chairman Yu Liang has disappeared since his retirement earlier this month. 

Temporary Relief

Last week, Vanke won approval for a similar plan for a RMB 1.1 billion puttable bond, in the first big concession from the company’s bondholders.

Vanke’s next yuan bond deadline will be a RMB 2 billion note which will mature on 23 April, with the company facing a total of RMB 12 billion in onshore liabilities coming due this year. 

While the fresh display of support from Shenzhen Metro has reassured some investors, analysts see significant challenges ahead for Vanke.

“Many investors hope Vanke’s state-owned majority shareholder can continue to bail it out. However, Vanke’s massive cash needs have already stretched Shenzhen Metro to its limits…It is also unknown whether any company would be willing to be Vanke’s white knight,” Chan Kung, founder and chief researcher of Chinese think tank Anbound, said in a commentary.

“Vanke’s debt extension has been fraught with twists and turns, and the intensifying battling of interests among the related parties is actually a true reflection of the current reality in China’s real estate market,” said Chan. 

Beijing has introduced a series of property market support measures in recent months, yet new home prices dropped for a 29th straight month in December, falling 0.37 percent from the previous month, according to the National Bureau of Statistics.

Analysts at Morgan Stanley see China’s housing slump continuing this year, with experts from the US investment bank predicting last month that new home prices could drop another 2 to 3 percent during 2026.