Shares of China's biggest builder Vanke fall to 5-year low on industry woes

Workers at a China Vanke construction site in the Fangshan district of Beijing, China, in a 2013 file photo. PHOTO: BLOOMBERG

HONG KONG (BLOOMBERG) - If you want to see just how bad sentiment has got towards Chinese property firms, take a look at the share-price performance of China Vanke, the nation's largest listed residential developer.

Vanke ranks among the minority of real estate firms that have not breached a single of the country's "three red lines" on debt and leverage.

The company remains profitable even as earnings and sales decline this year, with after-tax gross margin at 16 per cent. Vanke had about 147 billion yuan (S$31 billion) of cash on hand as at the end of September.

None of that helped the shares. They plunged 17 per cent in a seven-day rout to Tuesday (Nov 2) in Shenzhen to close at their lowest level since August 2016.

The losing streak mirrored a slump in the Shanghai property stock index. Stress has yet to spread to its dollar bonds, which have remained at par.

News that the government plans to expand property tax trials to cities beyond Shanghai and Chongqing has frayed investors' nerves at a time when the industry is being pummelled by tough rules on leverage and slumping sales.

Officials have yet to provide details on where the tax will be levied or how large it will be. Residential prices fell for the first time in more than six years in September.

Yet, Vanke's year-to-date sales to last month only fell 5 per cent, according to a Citigroup note citing data from research firm China Real Estate Information Corp. The drop is 30 per cent for China Evergrande Group and 13 per cent for Guangzhou R&F Properties, the note showed.

Vanke's yuan shares were 2.3 per cent higher at the midday break. The company is rated investment grade at Moody's Investors Service, S&P Global Ratings and Fitch Ratings, with a stable outlook at all three credit assessors.

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