(Jan 12): A debt advisory firm asked China Vanke Co dollar bondholders to consider calling a default on the embattled developer’s notes, based on cross-default clauses, people familiar with the matter said.
PJT Partners, which has been seeking to advise Vanke’s creditors, told the bondholders that an event of default was triggered after an original grace period on one of the firm’s onshore notes expired in December. So far, no creditors have made such a call on any of Vanke’s notes and the outreach doesn’t indicate that a default is imminent.
PJT is planning to hold a call with a group of bondholders on Tuesday afternoon, the people said. Such steps are often a prelude to the formation of ad hoc committees to represent holders in restructuring talks. Vanke has two dollar bonds with a total of US$1.3 billion outstanding.
Under “cross-acceleration” clauses in Vanke’s dollar bond offering documents, if other debts amounting to more than US$50 million aren’t paid on time or “within any originally applicable grace period”, bondholders can demand full payment of all the company’s notes. That’s as long as creditors representing at least 25% of the outstanding amount of any dollar bond agree.
PJT declined to comment, Vanke didn’t immediately respond to a request for comment.
The debt adviser’s outreach comes as dollar bondholders confront a grim outlook, with Barclays estimating that in a worst-case scenario, recovery rates could be as low as 0.9%. Vanke, widely seen as an emblem of China’s broader property crisis, is now working to push through proposals to delay onshore bond payments.
See also: China onshore stock turnover jumps to a record US$516 bil
In prior votes, the yuan bond holders rejected plans to delay payments for 12 months but agreed to extend the grace periods for several weeks. The company, under pressure from authorities, is also preparing a broader restructuring plan, which still needs Beijing’s approval, people familiar with the matter said last week.
Vanke, the last major Chinese developer to stave off debt failure so far, is under mounting strain from nearly US$50 billion in interest-bearing liabilities. The company scrambled for cash to meet bond repayments in December after a key state-owned shareholder scaled back support, triggering a cascade of default tests.
The risk is that the developer fails to find middle ground with bondholders or opts for a sweeping restructuring — both effectively leading to an eventual default and signaling a new front in a property crisis that’s triggered US$130 billion in non-payments and a wave of liquidations.
See also: Xpeng is said to hire banks for flying car unit IPO in Hong Kong
In its earlier proposals to creditors, Vanke offered to pay interest within the grace period and floated unspecified credit enhancements while seeking a 12-month deferral on principal repayments. Bondholders, however, pushed for more.
Investors have sought stronger credit enhancements, such as collateral tied to specific property projects, guarantees from major state-owned shareholder Shenzhen Metro Group Co or other Shenzhen-based state-owned enterprises.
Vanke appears unlikely to meet creditors’ demands. At a bondholder meeting last month, a company official said Shenzhen Metro had already extended more than 30 billion yuan in loans to the developer. The support was beyond its obligations, signalling that further backing was unlikely. A government-mandated restructuring plan would also be the clearest sign yet that Shenzhen Metro won’t bail out the firm.
Separately, Houlihan Lokey Inc also approached Vanke’s dollar bondholders earlier, seeking to advise them.
Uploaded by Felyx Teoh
