China Vanke makes fresh bid to win support for bond payment as default risk looms

HONG KONG - China Vanke, the nation’s last major developer to have so far avoided default amid an unprecedented property crisis, made a renewed effort to muster bondholder backing for an onshore debt repayment due this week and avoid a default after its plan was rejected.

Vanke will hold a second meeting to determine the fate of a two billion yuan (S$366 million) note payment, a filing to the National Association of Financial Market Institutional Investors showed on Dec 15.

The meeting will start on Dec 18 and culminate with voting to be held on Dec 22.

Once China’s biggest home builder by sales, Vanke’s move comes after bondholders rejected its first attempt to push back payment by a year. The bond tranche is due on Dec 15 and has a five-business-day grace period.

Mr Mark Dong, co-founder of Minority Asset Management in Hong Kong, said he expects bondholders to reach an agreement with Vanke to extend payment during the grace period, as “a deal is better than default”.

Credit risk

Vanke’s yuan bond due in January 2028 fell 20 per cent by midday on Dec 15, while another onshore bond due in May 2028 dropped nearly 18 per cent.

Shares of Vanke in Shenzhen and Hong Kong were down 2 per cent and 4 per cent, respectively.

The developer’s first attempt to seek approval to delay payment via a voting process that ended late on Dec 12 required support from at least 90 per cent of the note holders.

The proposal to postpone principal and interest payments by a year without extra credit support was rejected, with 76.7 per cent opposing it.

Two other proposals for the same bond, which included credit enhancement measures, had drawn some backing, with one winning 83.4 per cent approval, but neither met the 90 per cent threshold and were also rejected.

Nevertheless, that lent optimism to some analysts.

“We think Vanke’s bondholders may demand more credit enhancement or earlier repayment of some principal for the bonds due on Dec 15,” said Mr Jeff Zhang, a Morningstar equity analyst, adding that a deal could be reached in the next five days.

“That said, Vanke still relies heavily on external liquidity support even for the interest payment. Hence, the credit risk of Vanke remains elevated.”

Financial trouble

The setback for Vanke, one of China’s highest-profile developers with projects in major cities, comes after some of the country’s best-known developers have defaulted in recent years.

Among the companies hardest hit by China’s property crisis that started in 2021 was former giant China Evergrande, which was ordered­ to liquidate by a Hong Kong court and was delisted in 2025 after tighter regulations sparked a liquidity crunch.

The sector, which once made up a quarter of China’s gross domestic product, has been hit by slowing demand, with home buyer sentiment hurt by developers’ defaults, weighing on the growth of the world’s second-largest economy.

China’s new home prices extended declines in November, official data showed on Dec 15, indicating that a recovery in demand remains elusive despite the government promising to stabilise the sector.

Vanke is about 30 per cent owned by state-owned Shenzhen Metro Group. That state backing had been considered by some analysts as sufficient to stop the company from sliding into severe financial trouble.

“If Vanke ultimately defaults, we think the ramifications on the China property sector can be significant. Investors may be more concerned about the balance sheet and government’s attitude towards bailout for even the ‘safe names’,” Morningstar’s Mr Zhang said. REUTERS, BLOOMBERG