Shares of China Vanke opened lower on Monday (15) after bondholders rejected the state-backed promoter’s proposal to extend its debt maturity date, increasing uncertainty over the company’s future.
Vanke shares listed in Shenzhen fell 2.4% at the open, while shares traded in Hong Kong fell 5.4%. The company’s Shenzhen-registered bonds also fell, trading at around 20 yuan per 100 yuan face value.
A three-year bond worth 2 billion yuan ($283 million), with a 3% coupon, matures this Monday (15). The bank responsible for handling the paper presented three proposals at a meeting last week, all of which included an extension of the payment deadline by 12 months.
The outcome of the meeting showed that none of the proposals reached the minimum 90% quorum required for approval, although one of them, which included additional credit strengthening measures, gained the support of 83.4% of creditors.
Following this refusal, Vanke was given a five-day grace period to fully repay the principal and interest. In a press release published this Monday, the promoter indicated that it would convene a new meeting to try to negotiate an agreement concerning this bond issue.
The difficulty, however, raises concerns about another creditors meeting scheduled for December 22, which will discuss a 3.7 billion yuan bond maturing on December 28. This episode casts a new shadow over the Chinese real estate sector, which has been facing a prolonged crisis for several years.
Data released this Monday (15) by the National Statistics Office shows that new housing prices fell year-on-year in November in 64 of the 70 cities monitored. Second-hand property prices fell in all 70 cities. Vanke’s financial woes highlight the depth of the crisis in the sector, with prices continuing to fall despite official pledges to adopt measures to “arrest the decline”.
Although other major real estate developers have already defaulted on their external debts, the proposal presented by Vanke last month surprised investors. The reason is that its main shareholder is the state-owned Shenzhen Metro Group, operator of the local metro, which has been interpreted as a sign of strong government support.
“This is the first time a national bond has faced this type of problem, marking a new inflection point in China,” said Kelvin Lam, China economist at Pantheon Macronomics. He said the perception that investing in Chinese assets would imply automatic government support “no longer corresponds to reality”.
Lam added that investors will need to factor this risk premium into their decisions, “as it is now more likely that the government will not intervene, even in favor of developers considered iconic.”
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