Vanke’s rental apartment project in Xiamen has planned capacity for 10,000 inhabitants.
China Vanke has set up a RMB 1.6 billion ($220 million) rental housing joint venture with a pair of government insurers, according to an announcement on Tuesday, in what analysts see as a sign of further state support for the financially troubled developer.
In a filing to the Hong Kong exchange Vanke said that it has joined with New China Life Insurance (NCI) and Dajia Insurance Group to invest in a new fund that will acquire a 7,700-unit rental apartment project in the Fujian provincial city of Xiamen from the developer’s balance sheet.
The two insurers will take a combined 90 percent stake in the fund managed by a unit of CITIC Group with the deal seen aligning with government efforts to support the cash-strapped builder.
“We think the JV indicates a bailout to support Vanke’s liquidity,” Jeff Zhang, an equity analyst at Morningstar, told Mingtiandi. “While we still believe it’s unlikely for Vanke to divest all serviced apartments, the firm may liaise with insurance and other strategic investors to recycle capital from some projects.”
On the same day that it announced the housing fund, Vanke said in a separate filing with Shanghai’s Inter-bank Market Clearing House that it will make timely repayment on RMB 2 billion in notes maturing next week.
China’s Largest Rental Community
New China Life will hold a 59.9 percent stake in the joint venture with Dajia taking 30 percent and a pair of Vanke subsidiaries retaining 10 percent, according to the statement to the exchange. CITIC Goldstone Fund Management will take a 0.06 percent stake in the JV and act as its fund manager.
Former China Vanke chairman Yu Liang was demoted to executive vice president last month
The apartments were developed by Vanke’s Port rental apartment division (Boyu in Chinese pinyin) which the company said in the statement, “has outstanding debts including development loans.” Port will continue to manage the properties under the joint venture.
The target of the joint venture is Xiamen Bay Community, which Vanke says is Fujian’s largest affordable rental housing project and will become China’s largest rental community upon completion.
Situated on the northern outskirts of Xiamen island about 6 kilometres (3.7 miles) north of Xiamen Gaoqi Airport, the project is expected to span about 309,200 square metres (3.3 million square feet) of gross floor area upon completion.
The rental community, which is included in the local government’s subsidized housing program for youth, primarily houses fresh graduates and young professionals working in a nearby free trade zone and related tech parks as its main inhabitants.
The first phase of Xiamen Bay Community had its grand opening in mid-2023, with about 4,000 rooms launched. The second phase, set to include conference facilities, office space and a kindergarten, is expected to be opened next year. Public records show planned investment in the project totalling RMB 2.2 billion.
Aligning with the government’s drive to develop rental communities as a way to ensure housing affordability, Vanke’s Port division has ramped up its projects in the sector so that affordable housing now accounts for almost half of the units under its management.
Selling Non-Core Assets
Vanke’s deal with NCI and Dajia parallels a joint venture the developer established with China Construction Bank in 2023 with the lender taking an 80 percent stake in that RMB 10 billion fund. That vehicle acquired six of Vanke’s Port projects and went on to acquire unsold homes from other developers for use as affordable rental housing projects under Port’s management.
At an annual shareholder meeting last April Vanke announced a plan to “reduce debt, transform financing model and focus on core business.”
Reuters reported one month ago that Vanke was in advanced talks to sell a controlling stake in its VX Logistics industrial unit to GIC, with those discussions coming after the company sold a 48 percent stake in a Shanghai mall to the Singaporean sovereign wealth fund in July last year in a deal valuing the asset at RMB 820 million.
In August, Vanke set up a RMB 2.23 billion JV fund with Kangtai Life Insurance and CITIC Securities Investment to hold a pair of its shopping malls in Beijing and Shenzhen with the state-backed investors taking a 44 percent stake in the new venture, according to a filing to the Hong Kong exchange.
Last May, Vanke raised RMB 2.24 billion by selling a Shenzhen site earmarked for its future headquarters for to its major shareholder, Shenzhen Metro Group, and an investment firm owned by the local government.
A report last June said Vanke, which bills itself as China’s largest rental apartment provider, planned to raise about RMB 1 billion by listing of a REIT holding a portfolio of its rental housing projects on a mainland exchange, however, the company has yet to formally file for such a listing.
Financial Lifeline
Following a shake-up last month that saw Vanke’s president and CEO Zhu Jiusheng sacked and long-serving chairman Yu Liang demoted at the same time that the company’s largest backer, state-owned Shenzhen Metro, took over executive leadership, Vanke on 10 February received a three-year secured loan of RMB 2.8 billion ($383 million) from Shenzhen Metro.
Following that bailout, Vanke made timely payment of principal and interest on a RMB 3 billion set of notes maturing on 16 February after having met its obligations on a separate RMB 3 billion set of bonds which matured on 27 January.
A report last week indicated that an even bigger lifeline could be on the way, with Chinese authorities said to be mulling a plan to help Vanke fill a funding gap of about RMB 50 billion this year.
Under the plan, Chinese authorities would allocate a special local government bond quota of RMB 20 billion to buy unsold properties and vacant land from Vanke, with the funds intended to enable the company to pay public and private debt due this year, the report said, citing people familiar with the matter.
Vanke last month warned that, due to weak sales, lower margins and losses from asset disposals, it anticipated a net loss of approximately RMB 45 billion for 2024.
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