Analysis-Chinese developer Vanke’s credit pursuit clouded by clamour for collateral

By Thomson Reuters Mar 19, 2024 | 1:24 AM

By Engen Tham, Ziyi Tang and Clare Jim

SHANGHAI/BEIJING/HONG KONG (Reuters) – A rare Beijing directive to help Vanke beat a liquidity crisis has left lenders scrabbling for the assets that the state-backed developer has proposed for collateral, as parties pull out all the stops to arrest deterioration in the property sector.

China Vanke is gasping for funding after sales in both January and February fell below the monthly break-even point of 20 billion yuan ($2.8 billion), meaning cash flowed out of the business, an internal memo showed.

China’s property sector has been in the throes of a crisis since mid-2021. Local policymakers’ stimulus and easing measures have struggled to boost sales or increase liquidity, while many property developers have defaulted on debt obligations.

Reflecting the deepening crisis, regulators asked financial firms and creditors to step up financing support for Vanke – China’s second-biggest property developer by sales – in a rare intervention by central government, Reuters reported last week.

With plunging sales as well as bond prices clouding Vanke’s outlook, the developer has shared a list of mainly commercial projects such as shopping malls and their revenue streams with potential lenders to access fresh credit, said two people with knowledge of the matter.

Those lenders include a group of banks, led by Industrial and Commercial Bank of China (ICBC), which is in early talks to lend as much as 80 billion yuan, two other people said.

Lenders are reviewing as much of the higher-value assets as they can, the people said. At the same time, insurer-creditors have demanded further collateral before agreeing to extensions to the maturities of their debt holdings, said a fifth person.

The people declined to be identified as they were not authorised to speak to the media.

Vanke declined to comment. ICBC did not respond to a request for comment.

“The more demanding approach from creditors shows they have turned cautious even with state-related and better-performing developers, generally perceived as safe,” said Gary Ng, Natixis Asia-Pacific senior economist.

“Its more difficult situation shows that the biggest risk in the property market remains in the sluggish home sales.”

Analysts estimate the value of Vanke’s unpledged commercial property at 77 billion to 90 billion yuan, meaning the developer could borrow as much as 45 billion yuan if banks lend at a 50% loan-to-value ratio.

The ratio could be as much as 70% depending on collateral quality, said some bankers and analysts, underscoring the pressure Vanke faces to add high-value guarantees to its list.

Analysts expect Vanke to have enough cash to repay $1.4 billion worth of public bonds maturing this year, but question its long-term repayment capability considering its fast-depleting cash and $3.5 billion worth of debt due in 2025.


Vanke’s financial woe became public after the debt defaults of a string of marquee peers, including China Evergrande Group and Country Garden, amid an industry-wide sales drop.

Sales by floor area plunged 20.5% in January-February from the same period a year prior. For all of 2023, sales fell 8.5%.

Confidence among homebuyers as well as investors could drop even more should Vanke struggle to repay debt, considering Vanke is state-backed – about a third held by a state-owned enterprise – and has more projects in more big cities, and so was widely believed to be financially sound, market participants said.

Vanke has asked creditors including Taikang Insurance, state-owned PICC Property and Casualty and New China Life Insurance for permission to extend debt maturities, Reuters reported this month.

The three firms did not respond to calls and emails seeking comment.

That request prompted insurer-creditors to demand new collateral, said the fifth person.

In an apparent vote of confidence, Vanke on Friday said top shareholder Shenzhen Metro – in turn owned by Shenzhen’s state asset regulator – has agreed to subscribe to up to 30% of units of its consumption REIT backed by a shopping mall Hangzhou city.

Shenzhen Metro’s investment in the REIT using the shopping mall as collateral was “a relatively low-risk channel”, Nomura analysts wrote in a client note, saying the deal could indicate that even Vanke’s top shareholder did not have full confidence in the property developer’s other business lines.

($1 = 7.1954 Chinese yuan renminbi)

(Reporting by Clare Jim, Julie Zhu, and Xie Yu in Hong Kong, Engen Tham and Steven Bian in Shanghai, Ziyi Tang and Kevin Huang in Beijing; Editing by Sumeet Chatterjee and Christopher Cushing)