A China Vanke default may be blessing in disguise
01/12/2025 05:56
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Ka Sing Chan HONG KONG, Dec 1 (Reuters Breakingviews) - The last man standing in China's distressed property sector may finally fall. China Vanke 000002.SZ, the country's top home builder by sales, is the only major developer yet to default, largely thanks to generous support from its deep-pocketed state-owned shareholder, Shenzhen Metro. Yet Vanke appears to be losing its too-big-to-fail status. That might actually be a blessing in disguise for investors and the sector. In early November, Shenzhen Metro sparked fears about Vanke's liquidity when it requested collateral or pledges for about 20 billion yuan ($2.8 billion) worth of previously unsecured loans, per regulatory filings. Creditors were further rattled last week when the developer sought an extension to a 2 billion yuan onshore bond coming due, sending those prices plunging to a record low. On Friday, in a prompt response to Shenzhen Metro's demands, Vanke said it had pledged its entire 57% stake in property management firm, the $3 billion Hong Kong-listed Onewo 2602.HK, to its top shareholder. This sequence of events was unthinkable just a year ago, when the local government offered its "unreserved support" for Vanke, an iconic champion that has come to epitomise Shenzhen's economic growth since the 1980s. Over the past 12 months, Shenzhen Metro had provided more than 30 billion yuan in financing to the troubled developer, per Breakingviews calculations, though there have been little signs of any improvement in the battered real estate market. Vanke, which is sitting on 364 billion yuan in interest-bearing liabilities, continues to be deep in the red with a 16 billion yuan loss in the third quarter; in October, its chairman was replaced. By essentially securing Vanke's best asset as collateral, Shenzhen Metro looks to be protecting itself against a default. Other investors, though, might actually benefit from one: it will remove a year-long overhang of whether the company will continue to enjoy government support. And barring an Evergrande-style liquidation, a high-profile restructuring might not be too damaging to the sector where most rivals have already undergone one. Creditors will be better able to reprice risks for government-backed developers going forward too. CONTEXT NEWS China Vanke has pledged its entire 57.16% stake in Hong Kong-listed Onewo to its largest shareholder, Shenzhen Metro Group, according to a filing by Onewo dated November 28. The move follows Shenzhen Metro in November requesting collateral or pledges for 20.4 billion yuan worth of previously unsecured loans. If Vanke fails to comply, Shenzhen Metro has the right to demand immediate repayment of principal and interest on those loans. China Vanke's onshore bond yields have spiked on default fears https://www.reuters.com/graphics/BRV-BRV/jnvwkajddvw/chart.png (Editing by Robyn Mak; Production by Ujjaini Dutta) ((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))