Vanke’s bondholders reject extension plan on 2 billion yuan of bonds, raising default risk

China Vanke failed to secure bondholder approval to extend by one year a bond payment due on Monday, a filing showed, increasing the risk of default for the developer and renewing concerns about the crisis-hit property sector.\nThe setback for state-backed Vanke, one of China’s highest-profile developers with projects in major cities, renews concerns about the property sector, where some of the country’s best-known developers have defaulted in recent years.\nThe rejection in a three-day vote that ended late on Friday gives the developer a grace period of five business days to pay 2 billion yuan (US$280 million) on the onshore bond, the filing to the National Association of Financial Market Institutional Investors showed.\nVanke may propose extending the grace period to 30 business days, said Yao Yu, founder of credit research firm RatingDog. “If bondholders approve, it would give the developer more time to communicate with investors and reach a consensus.”\n\nVanke did not respond to Reuters’ request for comment outside business hours on the rejection by bondholders.\nAmong 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 this year after tighter regulations sparked a liquidity crunch.\nSince then, the sector, which once made up a quarter of China’s gross domestic product, has been hit by slowing demand, with homebuyer sentiment hurt by developers’ defaults, weighing on the growth of the world’s second largest economy.\n\nChina’s home prices are set to decline 3.7 per cent this year and keep falling next year before stabilising in 2027, a quarterly Reuters survey found this month.\nApproval of Vanke’s delay proposal would have required support from at least 90 per cent of voting bondholders.\nThe proposal to postpone principal and interest payments by a year without extra credit support was rejected with 76.7 per cent opposing it, the filing showed. Bloomberg News first reported the development on Saturday.\n\nTwo other proposals for the same bond, which included credit enhancement measures, drew some backing, with one winning 83.4 per cent approval, but neither met the 90 per cent threshold according to the filing.\nThe developer is also seeking to extend by one year the repayment of a yuan bond worth 3.7 billion yuan due on December 28, with a bondholder meeting scheduled for December 22.\nThe latest debt woes at a large Chinese developer are set to weigh on market sentiment and renew investor calls for stimulus measures to revive the sector, whose health is crucial for Beijing to bolster China’s economic growth.\n\nChinese leaders promised on Thursday to maintain a “proactive” fiscal policy next year that would stimulate both consumption and investment, and reiterated a goal to stabilise the property market with city-specific measures.\nVanke’s onshore notes were trading deep in distressed levels at around 20–30 yuan per 100 face value, while its two offshore dollar bonds are hovering near 20 cents on the dollar.\nRatings agency S&P Global downgraded Vanke on November 28, saying its financial commitments are unsustainable due to its weak liquidity levels, and that it was “vulnerable to risks of non-payment or distressed restructuring”.\nVanke is about 30 per cent owned by state-owned Shenzhen Metro Group. That state backing had been considered by some analysts enough to stop the company from sliding into severe financial trouble.\nReuters reported last month that state-owned China International Capital Corporation had been brought in to assess Vanke’s debt and that a debt restructuring was one option.\nA debt restructuring by Vanke, with 364.3 billion yuan of interest-bearing liabilities, could potentially dwarf defaults this decade by privately owned peers Evergrande and Country Garden.\n