China Vanke is seeking more time repay domestic bonds
China Vanke is requesting to extend a second onshore bond, with China’s once-largest developer seeking more time to pay back a RMB 3.7 billion ($523.6 million) note less than two weeks after signaling its first-ever domestic bond extension.
The builder, which is controlled by state-owned Shenzhen Metro Group, said in a filing with the Shanghai Clearing House on Friday that it is seeking bondholder approval to extend repayment of the RMB 3.7 billion medium-term note 22 Vanke MTN005, which comes due on 28 December. A meeting of holders of the note is scheduled for 22 December.
A separate filing showed the developer has put forward three extension proposals for its RMB 2 billion note 22 Vanke MTN004 which is set to mature on 15 December, pushing to defer principal repayment by one year and keeping coupon rates unchanged. Vanke had frst announced on 26 November that it would seek extension of the notes.
The total principal and interest of the two notes amount to RMB 5.871 billion.
“The extension reflects a lingering liquidity crunch for Vanke amid weak property sales, undermining its long-term debt-servicing capacity,” Jeff Zhang, an equity analyst at Morningstar, told Mingtiandi. “As homebuyers’ confidence in Vanke has also been dampened by recent news reports, we do not expect any material improvement in its liquidity over time.”
Extension Proposal Revised
In a draft proposal to holders of the RMB 2 billion note released on 1 December, Vanke sought to postpone repayment of both principal and interest to 15 December 2026 with the coupon rate remaining unchanged at 3 percent during the extension period, with no additional credit enhancements included.
Huang Liping took over as chairman at China Vanke earlier this year
The developer has since released two more proposals following reported objections last week from a number of bondholders to its original plan.
The second proposal adds credit enhancements, including a full irrevocable joint-liability guarantee by Shenzhen Metro or a Shenzhen state-owned enterprise. That offer also mandates on-time payment of interest on the notes on 15 December this year and grants the note priority over later-maturing bonds.
The third proposal similarly mandates on-time interest payment and the addition of credit enhancement, but does not offer repayment priority and lacks specific credit enhancement terms.
“We think creditors will likely approve the terms with interest payment by the end of 2025 with enhanced guarantee from Shenzhen Metro,” said Morningstar’s Zhang. “Vanke’s originally proposed delay of both principal and interest repayment by one year may not appeal to bondholders, in our view.”
Holders of the note are set to meet with Vanke this Wednesday and vote on the proposals by this Friday, 12 December. A proposal becomes effective after receiving approval from holders with over 90 percent of total voting rights.
“A spillover effect on the China property sector hinges on the progress of potential extension,” Zhang added. “If bondholders request immediate interest payment but Vanke could not meet the obligations, then the company will likely shift to a holistic debt restructuring. This could lead to essential defaults and further rattle the homebuying sentiment.”
Vanke’s Hong Kong-listed shares fell 3.1 percent on Monday while its onshore shares dipped 0.8 percent. Several of Vanke’s onshore bonds rose close to 20 percent while one bond fell 4.5 percent.
Credit Shifts
Also on Friday, Vanke said in a filing to Shenzhen Stock Exchange it would forgo the issuer redemption right on an onshore bond maturing in January 2028, and keep the coupon rate at 3.98 percent for the bond’s remaining two-year term.
The seven-year note 21 Vanke 02 has an outstanding balance of RMB 1.1 billion and gives Vanke the right to pay off early or reset the interest rate at the end of the fifth year – a mechanism allowing borrowers to optimise financing costs by leveraging favorable interest rate environments. Investors are granted an option to sell their holdings back to Vanke at par value at the end of year five.
The Shenzhen-listed note had a strong open, rising nearly three times from last Friday’s RMB 21.7 closing price, and fluctuated dramatically during the day before closing at RMB 26.8 to mark a 23.4 percent gain for the day.
Separately, Vanke said it would terminate its cooperation with local rating agencies China Lianhe Credit Rating and China Chengxin International Credit Rating for corporate credit and related bond ratings, citing internal needs and business conditions. The two agencies had given Vanke their top AAA corporate credit ratings in May.
Vanke 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.
In recent weeks, however, Shenzhen Metro has begun demanding more credit guarantees, with Vanke having late last month pledged its 57.16 percent stake in its Onewo Hong Kong-listed property management unit to Shenzhen Metro as loan collateral.
Rating agency S&P Global Rating downgraded Vanke’s credit rating to CCC-, which is just two categories away from default on the company’s scale, in late November. Fitch also downgraded some of Vanke’s notes last week.
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