(Jan 28): The price China Vanke Co must pay to avoid imminent default and get more time to work on a plan for one of the country’s biggest ever restructurings is now clear: 2.9 billion yuan (US$417 million or $530 billion).
That’s the amount the developer must make in partial payments this week to holders of three bonds, after winning their approval to push back full repayment by one year. Such payouts would be the largest Vanke has made since it first sought delays in late November, and would give it breathing room ahead of its next note maturity in late April.
Once China’s largest homebuilder and now at the epicentre of the nation’s years-long property crisis, Vanke got clearance from creditors to repay 40% of the principal Wednesday on two bonds it had failed to repay at maturity last month, filings late Tuesday showed. The partial repayments amount to 2.5 billion yuan, plus a further 413 million yuan due Friday on a separate security, according to Bloomberg calculations based on prior filings.
Vanke’s largest shareholder, state-owned Shenzhen Metro Group Co, will provide a loan of up to 2.36 billion yuan to help it repay principal and interest on bonds issued in the public market, according to a separate filing. The statement didn’t mention specific securities, but the timing suggests most of the funding for the partial payments this week could be coming from the state firm.
Vanke’s dollar bonds jumped at least one cent Wednesday morning, according to traders, though both notes are still trading at deeply distressed levels of around 26 cents on the dollar. The company’s stock rose as much as 4.4% in Hong Kong, while its Shenzhen-listed shares were up 3.8%.
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That last-minute development is reviving debate about the extent of state support for Vanke, one of the last major developers to have avoided an outright default after a broader property market slump sparked record debt failures in recent years.
“The new shareholder loan reflects the Shenzhen government’s continued support for Vanke and also partially addresses the funding issue for the immediate repayment of 40% of the principal,” said Jeff Zhang, an analyst at Morningstar Inc. “Given that Vanke has over seven billion yuan in bonds maturing in the first half of this year, we expect that its major shareholder, Shenzhen Metro, will continue to inject liquidity into Vanke, thereby reducing Vanke’s default risk.”
The builder’s sweetened offers of 40% upfront cash payments on the three local notes came as a surprise to investors, as the company appeared to have been struggling even with interest payments just a few weeks ago.
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It remains unclear whether there would be any further support from Shenzhen Metro to help address the builder’s upcoming bond maturities in the months ahead.
Vanke stated during online creditor meetings earlier this month that all notes would be treated on an equal footing, though no specific details were provided, people familiar with the matter said.
Vanke has been wrestling with a liquidity crunch for more than two years, during which it leaned heavily on shareholder loans from Shenzhen Metro to service debt. That support came into doubt late last year, when the subway operator sought to tighten borrowing terms, and pushed the developer to the brink of default.
The company is preparing a comprehensive debt restructuring after authorities asked it to submit a plan as soon as possible, people familiar with the matter said in early January.
Meanwhile, some dollar bondholders are urging Vanke to consider options such as debt-to-equity swaps, as they seek to avoid getting sidelined in any eventual overall restructuring. Vanke’s two outstanding dollar securities totalling US$1.3 billion are due in 2027 and 2029, respectively.
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