China Vanke Co, which just days ago got a reprieve on a local bond, has gained further breathing room after investors agreed to extend the grace period of another note, helping the embattled developer avert an imminent default once again.
Holders of Vanke’s 3.7bn yuan ($528mn) bond due today rejected all five proposals that would have permitted the Shenzhen-based homebuilder to push back principal repayments in some form, according to a filing to the Shanghai Clearing House. They instead approved a plan to extend the five-working-day grace period to 30 trading days, granting it more time to work out solutions for its looming mountain of maturing debt.
China’s last major developer to so far avoid debt failure, Vanke is straining under the weight of $50bn of interest-bearing liabilities amid an unprecedented real estate market slump. The latest negotiations come after it narrowly won last-minute support to extend a grace period on a 2bn yuan bond, even as its proposal to defer principal payment for 12 months was rejected. The firm’s long-term issuer rating was downgraded to selective default this week by S&P Global Ratings, which viewed the grace-period extension as a distressed debt restructuring tantamount to default.
Vanke, once China’s biggest developer, has been holding rapid rounds of back-to-back talks with creditors as it faces a 13.4bn yuan maturity wall by the end of June. If it eventually does embark on a restructuring, it would be among the biggest-ever in China. The builder has roughly $160bn of assets and more than 125,000 employees.
In the past, Vanke has benefited from the backing of its largest state-owned shareholder, Shenzhen Metro Group Co, but that support came into question in recent months after the subway operator signalled plans to tighten its lending terms. The shift triggered a sharp selloff in Vanke’s securities, pushing them into deeply distressed territory.
A default could have a cascading impact on the builder’s notes and loans through any cross-default clauses. Around 45% of Vanke’s roughly $50 billion debt load is unsecured, according to Barclays, making it particularly vulnerable if the company goes into restructuring.
Some of Vanke’s offshore bondholders have recently been approached by Houlihan Lokey Inc and PJT Partners, which are both seeking to advise them. Such steps are often a prelude to forming ad hoc committees that typically act as holders’ main representative in restructuring talks.
Vanke’s debt woes also underscore the government’s challenges as it tries to revive an economy worn down by years of falling home prices and weak consumer sentiment. Policymakers have long sought to balance efforts to stabilise the property market without directly rescuing individual firms.
Beijing city is relaxing home-purchase rules for non-residents in its latest effort to boost sales. The Chinese capital will reduce the number of years buyers need to have paid individual income tax or social security before they’re eligible to buy a home, according to an announcement on Wednesday.
