Chinese officials are working to stabilize operations at China Vanke Co. following a period of intense liquidity strain and concerns surrounding the disappearance of the company’s CEO. These issues caused significant turmoil for Vanke’s bonds and shares last week, according to individuals familiar with the situation. On Friday, officials from Shenzhen, where Vanke is headquartered, held a private meeting to address the developer’s situation. Shenzhen’s government, which holds considerable influence over Vanke due to its largest shareholder, a state-owned firm controlled by the city, is taking proactive measures.
During the closed-door discussions, Shenzhen’s officials outlined plans to ensure Vanke’s operational stability. In addition, they will bring in new auditors and financial advisors to assess the company’s balance sheet and ongoing property projects to facilitate the next steps for the firm. However, these deliberations are still in the early stages, and details could evolve. As of now, Beijing has not yet indicated its position on Vanke, and it remains unclear how the increased government intervention might impact the company’s debt obligations.
Following the news of the meeting, trading in three of Vanke’s yuan-denominated bonds was suspended on Monday afternoon after their prices surged by over 20%. These bonds included the 3.45% bond due in October 2027, the 3.64% bond maturing in March 2027, and the 3.21% bond set for redemption in July 2027. Vanke’s dollar bonds also saw an uptick in value.
Historically, Vanke has benefited from strong ties to the government, with financial regulators and the Shenzhen local government stepping in to facilitate financing extensions during previous periods of distress. Despite the ongoing property crisis, Vanke was once considered largely insulated from such challenges due to its government support.
However, the company’s fortunes have significantly worsened since the beginning of the year. Vanke now faces an overwhelming wave of debt repayments, as its property sales plummet, and losses widen amid the deepening slowdown in China’s real estate market.
On Thursday, market uncertainty intensified when reports emerged questioning the whereabouts of Vanke’s CEO, Zhu Jiusheng. A local media outlet, Economic Observer, claimed that Zhu had been detained by police, prompting speculation that the company could face a potential takeover. Hours later, other reports surfaced suggesting that Zhu was contacted, and the initial media stories were retracted. Despite these developments, further details about Zhu’s status remain unclear. Neither Vanke nor the Shenzhen government responded promptly to requests for comment.
According to Bloomberg analysts Kristy Hung and Monica Si, Vanke’s liquidity situation could reach a critical point in 2025 unless a state-backed bailout materializes. They pointed out that the company’s cash coverage of short-term debt stands at only 65%, the lowest since 2004, and it could worsen further. Vanke’s largest backer, Shenzhen Metro Group Co., also faces liquidity challenges.
Once considered a major player in China’s property market, Vanke’s current debt predicament underscores the broader struggles faced by even the most reputable developers amidst the ongoing property crisis. Despite the government’s efforts to stabilize the sector, a significant rebound in homebuyer demand has yet to materialize, further complicating the recovery.
Vanke has a total of $4.9 billion in bonds maturing or facing redemption options in 2025, representing the highest debt repayment burden for any Chinese developer this year. In early January, Vanke affirmed its commitment to meeting its public debt obligations. Raymond Cheng, head of China property research at CGS International Securities, suggested that if the government steps in, Vanke’s situation may be salvageable.
In late 2023, Shenzhen’s State-owned Assets Supervision and Management Commission expressed support for Vanke, describing it as a vital component of the city’s government-backed system. Since then, however, the Commission has remained silent on the company’s current situation.
Related topics:
China’s Securities Regulator Pledges to Stabilize Market Amid Sluggish Start to 2025
Bank of America Downgrades Tesla Amid Rising Risks and Mixed Technology Developments
India’s Nifty Faces Oversold Territory as Oil Prices and Weak Rupee Drive Market Slide
